Chapter EIM65970

CourtHM Revenue & Customs
Record NumberEIM65970
Published date22 May 2014

[Note: for councils in England this guidance supplements and amplifies the basic guidance at EIM65920 to EIM65950. See also:

Part one - members’ allowances (see EIM65960)

Part three - members’ allowances and National Insurance Contributions (see NIM05640 onwards).]

“Taxation of Members’ Allowances and Expenses Introduction
  1. This part provides general guidance on the tax treatment of members’ allowances. It covers:
  • the relevant tax rules
  • which allowances are taxable
  • the treatment of expenses incurred by a member carrying out approved duties which are reimbursed by the authority
  • what tax relief is available for expenses that the authority does not reimburse.

There is also a short section covering civic dignitaries.

For information covering National Insurance liability on members’ allowances and expenses see paragraph 146 onwards. [See NIM05640 onwards]

This guidance is not binding and does not affect any member’s right of appeal. Nor is it a full statement of the law as it applies to members’ allowances and expenses. Members should refer to the relevant legislation where appropriate. Alternatively they can contact their tax office, who will be able to help.

The tax charge
  1. For tax purposes council members and civic dignitaries are treated in the same way as any other individual who holds an office or is an employee. Earnings received from an office or employment are chargeable to income tax as employment income. PAYE arrangements apply to these earnings as they do to any other employment. ‘Earnings’ has a wide meaning - it includes salaries, fees, wages and any other profits received from an office or employment. It also includes allowances paid to cover expenses incurred in carrying out the duties of an office or employment, unless these allowances do no more than reimburse expenses actually incurred and which are deductible for tax purposes.
Relief for expenses
  1. Under the employment income expenses rules (Section 336 - 339 Income Tax (Earnings and Pensions) Act 2003, (ITEPA 2003)), local government councillors and civic dignitaries can get a tax deduction for:
  • travelling expenses necessarily incurred in the performance of the duties of their office
  • other travelling expenses which relate to their necessary attendance at a temporary workplace
  • any other expenses which are incurred wholly, exclusively and necessarily in the performance of their official duties

but note that expenses for travel in a person’s own vehicle are dealt with under separate rules and that actual mileage expenses are not deductible. See paragraph 126(viii) below.

  1. These rules include a series of conditions that vary for each type of expenditure. The conditions are:
  • in all cases the expenditure must actually be incurred. So, for example, if a councillor or civic dignitary is away overnight on council business but finds it more convenient to stay with friends rather than incur hotel bills, there may be no expenditure to set against any allowance received so no deduction would be due
  • travelling expenses necessarily incurred in performing the duties of the office are limited to expenses during necessary travel on members’ business, for example travelling between the local authority offices and a place the member needs to visit on local government business
  • a temporary workplace is a place the member only attends occasionally to carry out duties, or attends for a limited duration (defined as not more than 40% of working time over a period not exceeding 24 months) or a temporary purpose. The travel expenses to be deducted under this heading are the expenses of travelling between the members’ home and the temporary workplace
  • for expenses other than expenses of travel to a temporary workplace the expenditure must be incurred in the performance of the individual’s duties. This means that, to be deductible, the expense must be incurred in actually carrying out the duties of the office. It is not sufficient that an expense is simply relevant to, or incurred in connection with, the duties of the office. In particular, no expense will be allowable which merely puts the office holder in a position to perform the duties of that office
  • also for expenses other than those of travel to a temporary workplace the expenditure must be such that any holder of the office would be necessarily obliged to incur it. The fact that an office holder is encouraged, expected or required to incur a particular expense is not conclusive evidence that it is ‘necessarily’ incurred. Also, the expense must stem from the requirements of the job itself, not from the personal circumstances of the office holder. Strictly, the ‘necessity test’ will be satisfied if (and only if) each and every person holding the office would have to incur the expenditure
  • expenditure on anything other than travel must also be incurred wholly and exclusively in the performance of the office holder’s duties. For example, it may be necessary for a councillor to use a home telephone in the performance of his or her duties - but where the same facility is available to be used also for personal calls, the rental costs are not incurred exclusively in the performance of duties so no deduction is due (see paragraph 126(iii) below).

In addition, a deduction may only be given to the extent that the expense incurred does not exceed the earnings of the relevant office. If, for a particular year of assessment, there are insufficient earnings from the office to cover...

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