Aidan Callan
Freedom of Information Team
HM Revenue & Customs
100 Parliament St
London SW1A 2BQ
Mr James Martin
Tel
(sent by email to:
[FOI #12840 email])
Fax
Email [email address]
Date
2 July 2009
www.hmrc.gov.uk
Our Ref
FOI 1652/09
Your Ref
________
Dear Mr Martin
Freedom of Information (FOI) request
I refer to your Freedom of Information (FOI) request on 4 June 2009 for the following
information:
“(1) Please tell me what are the current HM Revenue & Custom's regulations in
relation to individuals claiming a tax allowance for the cost of an accountant (or other
such suitably recognised person)and how such a claim could reduce such a persons
tax liability (if at all) when such a person is:
a) a self employed person
OR
b) an employed person (On a PAYE scheme)
(2) Further please confirm if a Member of Parliament is defined as an employed
person or a self employed person?
(3) And finally confirm to what special tax dispensations or allowances (if any) do
Members of Parliament enjoy or receive compared to either a self employed person
or an employed person?”
1. Tax treatment of costs incurred for accountancy fees
Self employed persons
Information is available in large print, audio tape and Braille formats.
Type Talk service prefix number – 18001
A self employed person can claim expenses in computing the profits of their trade,
profession or vocation provided the expense is incurred wholly and exclusively for the
purposes of the trade, profession or vocation and is not specifically excluded from deduction
by legislation (e.g. capital expenditure). The relevant legislation is at sections 33 and 34 of
the Income Tax (Trading and Other Income) Act 2005.
Fees incurred for preparing accounts for commercial reasons and for many other
accountancy services will meet the wholly and exclusively requirements of ITTOIA 2005 s34.
Also allowable are the normal recurring legal and accountancy fees incurred in preparing
accounts and agreeing the tax liability in respect of the trade profits. This includes the
preparation of a tax computation. This adjusts the profit in commercial accounts to give a
figure of profit for tax purposes which does not include any expenditure disallowed by the tax
legislation.
The costs of completing an individual’s tax return would not be allowable costs in computing
trading profits as such costs would not be incurred wholly and exclusively for the purposes of
the trade.
Employed persons
The tax rules governing allowable employment expenses are well established and tightly
drawn. It is a basic principle of the UK tax system that only expenses incurred in actually
earning income from a particular source are deductible in calculating the tax payable on that
income. Relief is available only if the expenses are incurred “wholly, exclusively and
necessarily in the performance of” the duties of the job. The relevant legislation is at section
336 Income Tax (Earnings and Pensions) Act 2003.
This rule applies to employees across the board. To qualify for relief a very direct connection
between expenses incurred and the actual execution of the duties has to be demonstrated.
Accountancy fees for the preparation of an individual’s tax return enable the individual to
meet their personal obligations as a taxpayer and tax relief is therefore not available.
2. Employment status of MPs
Members of Parliament are office-holders in relation to their position as an MP and are
therefore taxed as employed persons.
3. Special exemptions/dispensations applying to MPs
MPs are taxable on the earnings from their position as MP. Certain expenses that they
claim, in particular the expense allowance for the costs of overnight accommodation away
from their home to enable them to carry out their Parliamentary duties, are specifically
exempt from tax. But other expenses, including accountancy fees, are taxed according to
the usual rules on the taxation of employment income. A deduction can then be claimed,
again according to the usual tax rules, for general expenses which MPs incur wholly,
exclusively and necessarily whilst performing their duties as an MP, or for travel expenses
which they have to incur on travelling whilst performing those duties.
If you are not happy with this reply you may request a review by writing to HMRC FOI Team,
Room 4/52, 100 Parliament Street London SWIA 2BQ. You must request a review within 2
months of the date of this letter. It would assist our review if you set out which aspects of the
reply concern you and why you are dissatisfied.
If you are not content with the outcome of an internal review, you may apply directly to the
Information Commissioner for a decision. The Information Commissioner will not usually
consider a case unless you have exhausted the internal review procedure provided by
HMRC. He can be contacted at The Information Commissioner’s Office, Wycliffe House,
Water Lane, Wilmslow, Cheshire SK9 5AF.
Yours sincerely
Aidan Callan
