Clause 136 - Exemption where homeworker's additional expenses met by employer

Finance Bill – in a Public Bill Committee at 8:55 am on 12th June 2003.

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Photo of Stephen O'Brien Stephen O'Brien Conservative, Eddisbury 8:55 am, 12th June 2003

I beg to move amendment No. 251, in

clause 136, page 81, line 7, at end insert—

'(2A) A payment equivalent to a weekly amount not exceeding twice the amount of the national minimum wage in force from time to time shall be assumed to be reasonable for the purposes of subsection (1).'.

I welcome you back to the Chair, Sir Nicholas, as we start our debate on employment income and taxation. We discussed clause 135 on the Floor of the House in relation to the various pressures and difficulties affecting such constituents as nannies, gardeners and butlers. With that background in mind, we arrive at this clause.

The clause permits employers to pay home workers. All Committee members will be deeply conscious of how much more significant the question of home working is these days. That is not just because of the demands of jobs and electronic opportunities to work at home; it would be helpful for Committee members to bear teachers in mind in relation to the clause. Under the clause, employers can pay home workers amounts free of tax to represent reasonable additional expenses that put them on a closer footing with site employees. I make no complaint about the need to put matters on a better footing.

The amendment is a probing one. It would be very helpful after I have outlined the reason for the amendment if the Paymaster General would outline whether the Government have target amounts in mind. The change is welcome, but Inland Revenue Budget note 3 states that no records will be necessary to substantiate a claim of up to £2 a week. We are concerned that £2 a week is a small figure, and is not necessarily commensurate with the £5 and £10 limits on personal incidental expenses that apply each night for night workers. We feel that £5 a week would be a

more realistic figure for the no-record keeping rule. That comes against a background of presuming that when the concession is formally published, it will refer to the need for the employee to keep records. It is difficult to see how an employer can provide the ''supporting evidence'' that the payment is wholly in respect of additional household expenses incurred by the employee carrying out his duties at home without record keeping by the employee, whom we note is not referred to in that context in Budget note 3.

Given the modern approach—the Paymaster General may want to confirm this in her reply—there is probably a case for a general review on the law relating to home working. It may be helpful if I highlight a case, which was helpfully brought to my attention by my hon. Friend the Member for Salisbury (Mr. Key), concerning tax relief for teachers. My hon. Friend's constituent, Mr. Chris Chelu, is a teacher who has engaged in extensive correspondence with the Paymaster General. He says:

''I feel that it would certainly help make teachers feel more valued if they were to have this tax relief.''

Mr. Chelu also makes this interesting point on home working:

''As regards the Unions and their attitude to the 1265 hours of directed time, if we assume that teachers work in school for 40 weeks of the year, this only works out to 31.6 hours a week of directed time. I can't imagine that the unions accept that teachers should only work these hours. The job would not get done properly if this was the case. We all know that teachers work much longer hours than that, as has been shown by many surveys, and we also know that the hours that they work cannot be all fitted in at school and that the vast majority of teachers work at home. This tax relief is not a vast amount of money, and giving parity with university lecturers would oil the wheels a little and encourage teachers to accept the constant changes that seem to be part of education policy these days.''

Mr. Chelu took his case to the ombudsman, who, understandably, disappointed him by saying that it was not within his remit to examine taxation. I raise the issue today because we are examining a combination of two issues, the sum and the absence of record keeping, which we must try to put on a realistic basis. The amendment is designed to probe the Government on the amounts that they have in mind. Mr. Chelu states:

''it is clear that I am not the only teacher to feel aggrieved by the attitude of the Government and tax authorities in this matter.

I feel that it is most unfair that one group of educational professionals, university lecturers, should be treated to a tax relief, whilst another group, school teachers are denied the same, when both have contracts which do not formally oblige them to work at home.''

The issue was first raised in an article in The Times Educational Supplement. Mr. Chelu continues:

''Dawn Primarolo says that there is no obligation on teachers to work at home . . . If all teachers took Dawn Primarolo at her word she would be responsible for the complete meltdown of the school education system.''

I do not endorse that argument and am not challenging the Paymaster General's position on the technical issue. However, I have drawn attention to that important area because we need to consider it.

I hope that the Paymaster General can elucidate the Government's thinking on setting a realistic amount that fairly reduces the bureaucratic burden of record keeping on the employer. The amount should relate to

people, such as teachers, who must work at home. The amendment suggests that the amount should be defined as a sum not exceeding twice the national minimum wage, which would be reasonable.

Photo of Michael Jack Michael Jack Conservative, Fylde

I welcome you, Sir Nicholas, back to the Chair.

I rise to support my hon. Friend the Member for Eddisbury (Mr. O'Brien) with my first question to the Paymaster General. What research did the Inland Revenue carry out to decide that £2 was the right figure? What enormous investigative analysis lies behind it? The amendment is correct to ask for a more realistic sum. If the home worker were to work five days a week, the per diem rate would be 40p. If they worked seven days, as many do, it would be even lower, at about 30p. In this day and age, when a home worker is required to use broadband technology to connect to their place of business, more than 30p a day worth of expenses may be incurred for that alone.

The clause states that

'' 'household expenses' means expenses connected with the day to day running of the employee's home.''

My conjecture is that one would knock up more than 30p to 40p a day just in having a brew a couple of times a day, making the odd phone call and keeping the light on. The Paymaster General will, no doubt, chastise us for having the nerve to question the £2 figure. She will say that the employer is not restricted from paying above that amount, but then at yet another cliff edge in the Bill we fall into the record-keeping arrangements that the clause ignores.

To be realistic about the matter, perhaps the Treasury should take a leaf out of the officeholder book, in which if one passes the wholly, necessarily and exclusively incurred rule, their expenses as predefined by their arrangement with their employer—the arrangement between the officeholder and the employer—can be automatically offset against income tax without the requirement for unnecessary record keeping.

The proposal is welcome but, to use a northern expression, a tad on the mean side. I look forward to hearing the justification for the £2 figure and, perhaps, the Paymaster General's agreement with my hon. Friend's proposal that a higher figure should be allowed in the clause.

Photo of John Baron John Baron Conservative, Billericay

I, too, Sir Nicholas, welcome you to the Chair this morning.

The majority of points have been covered. I rise in support of my right hon. and hon. Friends and would like to raise some further points. I, too, fully support this initial step to give a statutory exemption from income tax for the reimbursement of additional expenses that are incurred from home working. It is very welcome and I congratulate the Government on introducing it. It is worth remembering that some 1 million employees work from home in one form or another. The measure will be very welcome news indeed.

Home working is an important aspect of the modernisation of working practices in the UK. There is every indication that, if industry in this country is to remain competitive, home working will become an increasingly important characteristic of the way in which businesses lower costs and create a more flexible working environment. That is also welcome.

I wish to raise two very quick points. Could the Paymaster General give us some indication of how home working might be encouraged, and of the costs and benefits involved? What consultation is being undertaken on the matter? The impact of the uniform business rate and the difficulties in respect of travel expenses require full consideration in any such consultation.

My second point is about the sum of £2 a week. If we are to encourage home working, greater flexibility, and the modernisation of our working practices, welcome though the initial step of £2 is, it seems a little mean, bearing in mind the general running costs of a home. I ask the Government to consider the matter again and see what can be done.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Good morning, Sir Nicholas. I am glad that the hon. Member for Eddisbury wisely described his amendment as one that was intended to probe the Government's intentions. I concur with the point made by the right hon. Member for Fylde (Mr. Jack). Let us be a little realistic in approaching the discussion.

The clause provides for a new income tax exemption for payments by employers towards reasonable, additional household expenses incurred by employees who work some, or all, of the time at home. Home working is not a new phenomenon. It existed under the previous Conservative Government. In fact, teachers' contracts were the same under the previous Conservative Government. Under existing law, most employees would be liable to income tax on such payments. The clause removes the tax disincentive for employers contributing towards additional household costs incurred by employees who work at home.

The amendment tabled by the hon. Member for Eddisbury does not give a figure, but pegs the amount to the national minimum wage. Although I am delighted by the belated conversion of the official Opposition to the national minimum wage, I should point out that there are different levels. Leaving employers to ascertain which level should apply would not, to put it mildly, be a sensible way forward in terms of trying to reduce the administrative burdens on them. It would have quite the reverse effect: it would increase those burdens.

Let me deal with the point raised by the right hon. Member for Fylde with regard to how we proceeded. The Inland Revenue had informal discussions with a number of employers that operate flexible working schemes. We went to those employers. The figure of £2 a week—£104 a year—was considered reasonable to cover the additional day-to-day household costs likely to be incurred by employees through working at home. Clearly, that figure will be kept under review. The

companies to which we spoke, which included British Telecom, consulted with the IT industry.

We went specifically to employers that currently pay expenses—because that matter is already provided for in the law. We will come on to teachers. We asked the companies what they considered to be reasonable in relation to the profile of what they were paying. I am sure that the right hon. Gentleman would agree that, as he often impresses on the Government, in such areas we should consider whether there is a real need and what the level is. The employers said that the move would help them. Up to that figure, no receipts are necessary and no agreement with the tax inspectors. No questions are asked: it can be paid.

The £2 per week is not the upper limit. Employers can meet the full amount of additional household expenses incurred by employees who work at home. They can already do that. The figure of £2 per week is intended as a de minimis to simplify matters for the employer. It is the de minimis that employers said would help them. They can pay up to that amount without needing to gather information about their employees' additional household costs. That does not preclude them from reimbursing above that level, but they would then be expected to ask for supported evidence of additional expenses. We can all use common sense over how large such costs are and whether the details are reasonable.

The hon. Member for Eddisbury asked whether employers will need to keep detailed records of additional household expenses if they reimburse by more than £2 a week. The answer is no. Employers can now agree with their inspector an average allowance based on reasonable estimates of their employees' additional household costs. The clause is incredibly modest, responding to representations from employers who currently make additional payments to their employees, and therefore know how the system operates.

The hon. Member for Eddisbury asked about teachers. They are in the same position as other employees. If their employer reimburses additional household expenses, they are covered by this exemption. The same rules apply to them as to everyone else.

The hon. Member for Billericay (Mr. Baron) asked a much wider question about home working. That ties in to the flexible work argument, and questions about what is and is not reasonable in the work-life balance. The current rules provide, without this exemption, for considerable flexibility of approach and discussions between employers and their inspectors. The hon. Gentleman asked what the future might look like. As a Treasury Minister assessing how that field of work will develop, I have an open mind over the best interests of the taxpayer and over whether the current tax rules will offer a way forward in supporting that alternative means of working without cutting across basic rules and assumptions in the tax system.

I cannot therefore describe to the hon. Gentleman our view on what the future will look like, but as more employees, with the consent of their employers,

consider more closely a combination of working from home and in the workplace, we are very sensitive to the need to consider the interaction of all the tax rules. That is what we are doing. As he rightly pointed out, there is an issue of travel expenses, and whether one is entitled to claim for travel to one's place of work. That can get rather complicated. This clause does not address such matters.

Photo of John Baron John Baron Conservative, Billericay 9:15 am, 12th June 2003

I welcome the Paymaster General's words. Although there have always been, to my knowledge, regulations that allow flexibility over home working, we are taking quite a big step forward in encouraging home working through the tax system with this apparently small step. Although that will create complexity, having taken that step, the Government need to think through in consultation with business, all the ramifications, such as the implications of the uniform business rate as well as travel expenses. I welcome the Paymaster General's words, but there is a long way to go.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Any Government would need to be cautious in that debate because of the complexities of the tax system, as the hon. Gentleman has pointed out. That is why the Government are responding to requests from business for simplification. Businesses are just as cautious in recognising the issues for them, let alone the issues for the taxpayer and the Inland Revenue as the guardian of the taxpayer's purse.

This is not the first step we have made in that area. The hon. Gentleman will remember that there is an exemption for the use of computer equipment provided for employees to work at home. There is an exemption for the use of other employer equipment or services supplied for employees to work at home. We recognise that the nature of work is changing, and we intend to proceed in consultation with all those who represent employees and employers to ensure that we get that balance right.

The clause has been useful in exploring the wider issues. I hope that hon. Members will appreciate that because of the complexity of the area, and in response to direct requests from employers, the exemption with regard to record keeping—not the maximum—has been set a level that we think is practical, but it will have to be kept under review. I know that that is something that we say about the tax system as a whole, but it will have to be kept under review to ensure that the operation does not produce distortions in the tax system or encouragements to structure in a particular way when that may not be in the best interests of the employer or the employee in the long run.

With those comments, I hope that the hon. Member for Eddisbury will feel that I have answered his points, and not press his amendment. If he does, I shall ask my hon. Friends to oppose it.

Photo of Stephen O'Brien Stephen O'Brien Conservative, Eddisbury

I am grateful to the Paymaster General for a reply that sought to address our points. I am glad that she felt the debate was a useful exploration of the broader issues in what is an increasingly recognised and important constituent of the way people work and organise their lives. I certainly accept that it has been going on for many years.

I accept that the clause will be kept under review—I take the Paymaster General at her word. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 136 ordered to stand part of the Bill.