THERE IS "NO BASIS" on which MPs can claim the cost of hiring accountants to file their expenses, according to tax practitioners.
The Independent Parliamentary Standards Authority (IPSA) is defending the right of MPs to employ an accountant to complete expenses forms and tax returns for the office, with the costs – approximately £5,000 per year – tax deductible.
The taxman, however, disputes that view, and argues existing arrangements subsidise MPs' personal finances instead of their parliamentary work, although the watchdog insists it only covers business costs and will not pay for personal expenses.
The income tax (earnings and pensions) act (ITEPA) states that expense claims must be "wholly and exclusively" for the purposes of trade, criteria that experts say accountancy work for MPs falls outside of.
As a sole practitioner or trading business, the rule in the tax legislation states that if things are wholly and exclusively for the purposes of trade, you would deduct them as a business expense, explain advisers.
"I'm not convinced an MP is trading," says Crowe Clark Whitehill's tax partner David Mellor, whose firm has in the past completed expenses claims for MPs.
"I can understand the view IPSA is taking, but there is no statutory basis for such a deduction."
There are some, too, who are concerned IPSA is straying into sensitive territory after the recent revelations over public office holders receiving payment off-payroll, and 2009's parliamentary expenses scandal.
George Bull, head of Baker Tilly's professional practices group, shares that unease.
"I thought IPSA was the body tasked with enforcing the standards, not representing the views of MPs," says Bull. "It's always dangerous when a body which is effectively the regulator tries to take on a representative capacity."
He feels, too, the political angle as well as the legislation will tip the argument in the Revenue's favour.
HMRC is trying to clamp down on senior executives and office holders being paid off-payroll after Treasury secretary Danny Alexander's announcement of an investigation into the matter in May.
"This, in a way, is just an extension of the same thing," says Bull, something most agree the public is, for once, likely to side with the taxman over.
Ultimately, it is the taxman that has the power to settle the dispute. It is, after all, the body that interprets and enforces the tax laws. As such, if the stalemate continues, it could simply pull rank.
"HMRC eventually has to decide if it's going to grant them [MPs] some kind of special exemption, or change the rules for MPs. They enforce the tax law," says BDO's tax director, Dawn Register.
For their part, both the Revenue and IPSA are unequivocal. In a statement, the taxman says "long-standing and strictly applied rules relating to the taxation of employment income tax relief is only available for general expenses if they are incurred wholly, exclusively and necessarily in the performance of the duties of the employment. This rule precludes a tax deduction for the costs of complying with tax law and therefore accountancy fees incurred by employees are non-deductible."
In correspondence obtained under the freedom of information act, IPSA succinctly tells HMRC it "does not consider that expenses for parliamentary accountancy should be taxable".
As things currently stand, there does not appear to be any conclusion in sight, and with IPSA currently covering costs where HMRC will not, a resolution is urgently needed.
Perhaps the public's ire will again force a change in parliamentary behaviour.
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