Is Your Training Tax Deductible

Recoup your training investment

This question frequently comes up and it is usually along the lines of ‘My partner or I would like to learn about X and there is a great course. Could I put it through my business?’

Most business owners think that training costs aimed at improving skills or business profits automatically qualify for tax relief, but that is not necessarily the case.

In order to consider whether training is tax deductible we have to look at who is receiving the training and who is making the payment:

  1. A sole trader or partner receiving training from his or her business.

  2. A company director receiving training from his or her business.

  3. An employee receiving training paid by the business.

An employee receiving training paid by themselves.

1. Sole traders or partnerships

HMRC takes the stance that you have to look at the existing trade and provided the training is undertaken to update your skills and professional expertise then this expenditure is normally tax deductible.

This will include for example an electrician needing to go on a course to learn about new regulations that have been brought into force which he needs to learn in order to continue to be an electrician.

In this case the expenditure will be fine. If however it is to enable the electrician to go into a new market e.g. home security then this will probably be disallowed.

If a completely new specialisation or qualification will be acquired as a result of the expenditure, it is unlikely that the expenditure will be wholly and exclusively for the purposes of the existing trade and therefore not tax deductible. So an electrician who fancies doing a plumbing course to expand his activities would strictly not be able to claim a deduction for the expenditure. The main legal case was Dass v Special Commissioner and others [2006]. The taxpayer traded as a tutor in English and as an advisor in relation to the bringing of appeals before various tribunals. He took a course which would have led to a diploma in law (LL Dip) qualification and claimed a deduction for re-sit examination fees (having missed the original examinations due to illness). The Special Commissioner decided that the fees were capital in nature and not tax deductible.

If you are undertaking training as a sole trader or partner in a business and the course is not simply to update existing expertise or knowledge to enable you to continue to trade as you are then please contact us to determine whether the cost is tax deductible.

2.Directors of Limited companies

As the limited company is your employer then different rules apply.

By and large, any training which makes you better able to do your job (and this includes very general sorts of training which may not have an immediate impact on their ability to do the work) will be allowable.

So a director of a software development business who wants to learn a totally new software language or wants to learn about plumbing will be fine provided he or she can demonstrate that the expenditure has been incurred for the purpose of the business irrespective of the end result. So to allow the costs of plumbing training the director has to demonstrate that he is looking to expand his business into plumbing.

Training will also include soft skills such as improving management skills, learning to deal with stress, time management etc….

A director has to be careful where the expenditure is not incurred wholly for the benefit of the business. So say the director of a software company decides to go on a plumbing course because he or she plans to do their own plumbing at home and not to market plumbing as a new service for the business then this expenditure is not tax deductible as training.

3.Employees of a business

In general provided there is no relationship between the employee and the business owner the expenditure should follow 2 above.

However care must be taken if training is provided to a family member who is also an employee. When carrying out training we would recommend you always ask yourself the question if this was an ordinary employee (i.e. not a family member or yourself) would you have spent the money on training the employee? If the answer is yes because it will benefit the company then the expense will be tax deductible. So if you have an electrical company but decide to go into plumbing and pay for your staff to go on a plumbing course which results in a new revenue stream for the company then the expenditure is tax deductible. If however you simply decided to pay for a plumbing course for your son or daughter so that they can learn a new skill which might help them to set up as a plumber  then if this expenditure serves no benefit to the company the expenditure is not tax deductible as a training expense. It could however be taxable as part of a remuneration package and then assessed on the individual as a benefit in kind.

If there is any uncertainty about the motive for the expenditure then it is unlikely to be tax deductible as a training expense so please seek advice.

4.Employees pay for their own training

On rare occasions we do get asked whether an employee who spends their own money on training can have this expenditure offset against their other income under self assessment.

The short answer is it is highly unlikely. We would always recommend you get your employer to meet the expenditure.

HMRC’s stance is that no deduction should normally be permitted under Section 336 ITEPA 2003 for expenses incurred by an employee for external education. This is so even where the subject of the education is closely relevant to the nature of the employment. The expenses are not deductible because they are not incurred in the performance of the duties of the employment.

It is therefore very rare for an employee to claim any training costs. HMRC does give one example of a training related expenditure which could be claimed:

A scientist is employed by a University department to carry out basic research in polymer chemistry. As part of her continuing research she attends a presentation at a different university of the findings of a scientist working in the same field. She is required to attend such presentations as part of the programme of research for which she is employed. The subject matter of the presentation directly influences the content and direction of her own research.

The duties of this employment include research. In this case attendance at the presentation is an integral part of the research process and so is one of the duties of the employment. The costs of travel to the presentation are deductible.

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