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Writing various Blogs on Budget 2015, got me looking ahead to the general election and I think I’ve come up with one very easy way to simplify tax for the self-employed, get the MP’s to do it. Now before you laugh out loud and start believing I’m prone to flights of fancy, read on……….

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Mp’s Expenses

MPs’ pay is the subject of much derision. A lot of MPs don’t do themselves any favours by whinging on about they can’t afford to live on a backbencher’s salary or getting caught fiddling their expenses or being caught on camera selling their influence to help overseas businesses.

But am I being unfair to expect MPs to live on the basic salary for a backbench MP of £67,060 per year? I would not move to central London for a job that paid £67k, especially one that required late nights in the office, ruined your family life and required you to attend meetings in the distant constituency most weekends.

A basic pay of £67,060 may sound high, but when you consider the cost of living in Inner London, it isn’t that high. As a benchmark; you may be surprised to learn that a family on earnings of up to £80,000pa is eligible to apply for a subsidised affordable 3 bed house in London.

My suggestion is to make all MPs operate as individual self-employed contractors instead of the current “employed but with lots of extra benefits” status. Each MP would invoice Parliament for the time they spend on Parliamentary work. The MP’s hourly rate would of course have to have an agreed minimum rate, say £40 per hour. Anything higher would have to be negotiated between the MP and Parliament on an individual basis,; but to increase their rate, MPs with poor negotiating skills, or less to offer, would get paid less.

I would also allow every MP to be free to choose the structure of their own business; sole trader, partnership (perhaps with spouse), limited company, LLP, or any combination. They would claim expenses for their qualifying business costs through their business, such as for travelling or administrative support. The MP’s business would be required to register for VAT and operate PAYE as appropriate. The MP’s business would have to submit tax, VAT and RTI returns, and be subject to tax inspections and audits just like other businesses.

The MPs would be free to conduct other non-Parliamentary activities through their own business, but there needs to be a contract to ensure the MP spends the time required on his or her parliamentary duties. So if an MP is spending too much time on his or her private work and breaks the contract, they could be turfed out. I would suggest a swipe card which the MP would use to clock-in and out of the House of Commons and Portcullis House where many MPs have their Westminster office. The time spent on Parliamentary business by each MP would be published online so anyone could see how many hours each MP claims to work (as is their voting record already).

Encouraging Transparancy MP’s Finances

To encourage transparency the full accounts for each MP’s business would be published, no abbreviated accounts would be permitted, so the public and especially their constituents, could see exactly what expenses they’re claiming. I would not allow any special tax or employment rules for MPs, as there are now.

Each MP’s business would be subject to the IR35 and all the other rules for business expenses and employment. If MPs don’t like the way certain tax or employment laws work for their own business, they of course would be free to change the law – as that is their job as the country’s law makers. But to make this new system work fairly, there must be equality under the law for all. Any revision to IR35 or other tax or employment rules must apply all businesses, not just for the MPs’ businesses.

This proposal solves the problem of MPs pay – they each get paid for the hours they work at the best rate they can negotiate, just like any other skilled contractor. It also solves the MPs expenses problem – if the item claimed is not a valid business expense they can’t claim it. Any “grey areas” would have to be argued first with their accountant and secondly with HMRC.

This plan also has the bonus that it ensures that every MP has a good insight into how business works and the administration and tax burden suffered by ordinary businesses. I believe that the more onerous tax and employment rules would be removed or amended once they began to apply to each and every MP. What do you think?

*(IR35 is tax legislation designed to tax “disguised employment” at a rate similar to employment. In this context, “disguised employees” means a worker who receive payments from a client via an intermediary and whose relationship with their client is such that had they been paid directly they would be employees of the client.)

 

David Jones with Grandson

David Jones with Grandson

If any of you would like more detailed information on any aspect of IR35, send me an e-mail and I’ll be pleased to advise further.

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