Greg Hands is Parliamentary Private Secretary to the Chancellor of the Exchequer and MP for Chelsea and Fulham
Earlier today, my colleague Steve Baker posted that MPs were to be given favorable tax treatment due to a mysterious clause in this year's Finance Bill, published just after the Budget. Thinking this a little odd, I checked with the Treasury earlier.
The new rules arise as a result of IPSA and what is called disguised remuneration. In short, the disguised remuneration legislation is designed to stop remuneration being diverted through a third party and disguised in a form to avoid tax. For example, loans are used which are subsequently written off and the full tax revenue is not collected. In order to ensure that the anti-avoidance arrangements are as effective as possible, the legislation is broadly drafted with a number of carve outs. These include a carve out for deferred bonuses in accordance with the FSA requirements in this area, group company transactions and other genuine commercial transactions and a specific carve out for employee car ownership schemes.
The carve-out relating specifically to MPs covers payments made by IPSA to enable MPs to perform their parliamentary functions. It will apply in those circumstances where IPSA provides a loan to an MP in advance of the MP making a payment to a third party. For example, if an MP has a large bill to pay for his office rent, the MP could pay for this out of his own pocket and subsequently be reimbursed. Alternatively, IPSA is willing to provide an advance to the MP who must then use the sum to pay the bill. Clearly, this loan arrangement does not constitute tax avoidance but shares some of the attributes of the disguised remuneration arrangements that we are trying to counter and might be caught by the legislation. In order to prevent these IPSA advances from being caught up in the anti-avoidance legislation, the Bill contains a carve out, just as it contains a carve out from other non-tax motivated arrangements described above.
So, in conclusion, MPs are not being treated differently from the rest of the population, merely that the very specific arrangements involving MPs and IPSA could – without this specific provision – be inadvertently caught up in measures designed to address tax avoidance.