This question is asked a lot and it is usually along the lines of…. “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’s 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. In this article we look at the position for limited company directors and employees.
Limited company directors
As the limited company is your employer, different rules apply.
Generally 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 your ability to do the work) will be allowable.
For example, 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….
Care needs to be taken 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.
Employees of a business
In general, provided there’s no relationship between the employee and the business owner the expenditure should be the same as for directors.
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 this question. “If this was an ordinary employee (i.e. not a family member or yourself) would we have spent the money on training them?” If the answer is yes, because it will benefit the company, then the expense will be tax deductible.
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 then the expenditure is tax deductible. But if you 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 this expenditure serves no benefit to the company and is not tax deductible as a training expense. It could however be tax deductible as part of a remuneration package and then assessed on the individual as a benefit in kind.
Employees pay for their own training
We are sometimes asked if 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 against employment income for expenses incurred by an employee for external education. This applies even where the subject of the education is closely relevant to the nature of the employment, because the expenses are not incurred in the performance of the duties of the employment.
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 on 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.
The example is very specific. Our advice is that if you wish to undertake training try to get your employer to pay for it.
Self-employed, partners and LLP members
For the self-employed, HMRC will look at the existing trade and provided the training is undertaken to update skills & professional expertise, then this expenditure is normally tax deductible.
For example, an electrician needing to go on a course to learn about new regulations that have been brought into force in order to continue to be an electrician, would be allowed.
But if the course is to enable the electrician to go into a new market, e.g. home security, then this will probably be disallowed.
So 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.
An electrician who fancies doing a plumbing course to expand his activities would strictly not be able to claim a deduction for the expenditure. In a leading legal case is Dass v Special Commissioner and others , 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.
As you can see training can be problematical so if uncertain always take professional advice. If you are a client of Friend & Grant please contact Jan Friend to discuss whether the expenditure is tax deductible and if not can it be structured in such a way to get some tax relief. If you are not a client of Friend & Grant please contact your tax adviser who should be able to assist you.
The content in this blog is correct as at 23rd October 2018. See terms and conditions.