Monday, July 20, 2009



In my last blog I puzzled over how Sarah McCarthy-Fry, the Exchequer Secretary to the Treasury, could see a distinction between extending the scope of a tax and mitigating revenue losses when such mitigation was achieved by extending the scope of the tax.

I now realise that Ms McCarthy-Fry probably has a view of the world that is somewhat different to how most of us approach it. Accordingly I am now on the look out for her concepts.

Today’s offering is, “One effect of increasing the AMAPs rate would be to provide an incentive to those employees whose actual costs are less than the proposed 45p a mile rate to drive further in order to profit from the mileage reimbursement. That is not the purpose of the allowance, and it could lead to an increase in unnecessary driving and thus to an increase in overall carbon dioxide emissions, contrary to the Government’s environmental objective”.

For the benefit of those, like me, who had never heard of an AMAP, it stands for Approved Mileage Allowance Payment (I think). Mileage allowance payments were introduced on 6 April 2002. They are exempt from tax. They are amounts paid to an employee for expenses related to the employee’s use of his own car for business travel and are 40p a mile for the first 10,000 miles a year and 24p thereafter. Business travel is travelling, the expense of which would be deductible under ITEPA 2003, ss 337-342. Under s 337 the employee must be “obliged to incur and pay” the expenses as holder of the employment, and the expense must be “necessarily incurred on travelling in the performance of the duties of the employment”.

The Opposition proposed an amendment to the Finance Bill to increase the 40p to 45p a mile. Inflation since 5 April 2002 (using HMRC indexation allowance table) is a bit over 21%. A 5p increase on 40p is 12.5%. Accordingly it does not even cover inflation.

Ms McCarthy-Fry seems to think that if the government were to allow employers to increase their mileage allowance payments to their employees not even to reflect inflation, but to reflect only 60% of the effect of inflation, employees with small cars whose actual cost of fuel maintenance, depreciation and insurance amounts to less than 45p a mile would needlessly drive around, spewing carbon emissions into the air, in order to reclaim from the employer an extra few pence a mile. This in circumstances where they need to convince the employer that the extra mileage is “necessarily incurred” on the business journey! That is a pretty stiff test. If an employee takes a longer route when a shorter one was available, is the extra mileage “necessarily incurred”? Obviously Ms McCarthy-Fry believes that it is, as she envisions thousands of motorists driving necessary, but needless, miles to earn a few extra quid tax-free.

Personally I find it hard to understand how something can be both necessary and needless at the same time. Which just goes to show that I am not Ministerial material.

It’s good to know that Ms McCarthy-Fry is there to protect us from those who would otherwise be tempted to drive necessary mileage simply for the sake of it!


Friday, July 17, 2009


Q. When is a tax increase not a tax increase?

A. When it is mitigating revenue losses. At least that is what the Exchequer Secretary to the Treasury, Sarah McCarthy-Fry, explained to parliament when she told it that the government intends to charge to landfill tax something that the Court of Appeal has held to be outside the scope of landfill tax and for which she told parliament, “The Government have accepted that decision”.

The Minister actually said, “I stress that this is a case of mitigating revenue losses and not extending the application of the tax” (Hansard, Public Bill Committee, 25.6.2009, col 639).

This concept of mitigating tax losses is a novel concept. What it appears to mean is that if the government wants to tax something, but introduces legislation that actually exempts it from the tax then, when they try again to tax it, they are not taxing something that was not previously taxable; they are simply mitigating the loss that the State has suffered because the government originally exempted it when they actually intended to tax it. I hope that is clear.

If the government were to say that they originally got it wrong but were now “extending the application of the tax” so that it catches the item in question, the Opposition parties and many commentators might label the extension of the application as a stealth tax. Mitigation of a loss is not a tax increase at all; it merely increases the tax that is being lost because the law did not reflect what the government would have enacted had they been bothered to think more carefully about what they wanted to do, and not bulldozed masses of legislation through parliament to a timetable that left no room for either themselves or the Opposition parties to work out what the government was trying to tax and ensure that the wording of the legislation achieved that objective.

Obviously, like me, the Minister is a fan of Humpty Dumpty, “when I use a word … it means just what I choose it to mean – neither more nor less”.

At least Ms Carthy-Fry’s ridiculous distinction between extending the application of a tax and mitigating revenue losses caused by the tax, not extending it to the item that she now proposes to tax, is a big advance on the approach of one of her predecessors, Dawn Primarolo.

When it was pointed out to her that legislation that she was introducing was unclear, she dismissed any suggestion of clarifying it before it was enacted in its unintelligible state with the statement:

“We expect people to be sensible. The tax system cannot be absolute and is not designed to be. The Schedule gives clear indicators of the type of development we want”.

In other words, “The law doesn’t matter; people should guess what the government wants them to do and do it, irrespective of whether or not the laws that we choose to enact require them to do”.

I doubt that even Lewis Carroll would have had the nerve to put forward such an outlandish proposition.