There are lots of rules around what you can and can’t claim for tax deductible expenses. When it comes to training, seminars and CPD, there are one or two grey areas over what you can claim tax relief for. Most business owners think that any training costs automatically qualify for tax relief, but that’s not necessarily the case.
According to tax legislation, tax relief is allowable for training expenses only when the training is wholly for business purposes. This essentially refers to seminars and courses that update existing business or professional knowledge, and includes training required to maintain membership of a professional body.
However, training courses offering completely new knowledge that aren’t for the benefit of the business don’t qualify for tax relief. So, for example, if an electrician went on a training course to update his or her knowledge on new legislation regarding electrical work, tax relief would be deemed allowable.
If, however, an electrician decided to train as a plumber to do work on his or her own home, this wouldn’t be deemed allowable for tax relief because it is to acquire a new skill that isn’t wholly for the benefit of the business. It could be entirely possible (say in the case of a dentist or doctor) that part of a course could be deemed allowable and part not, depending on the course content.
The rules and how you deal with tax reporting will also depend on your status (self-employed, sole trader or limited company).
Chartered Accountants, Numeric Accounting, say the most common question they get asked when it comes to tax relief on training is:
“Is tax relief available for training costs when setting up a new trade in a limited company?”
The answer is that corporation tax relief is generally available for officers (directors and secretaries) and employees for any work-related training. Training related to setting up a new trade within the business qualifies as work-related training in a Limited Company. For directors this includes soft skills such as how to deal with stress, time management and leadership skills.
HMRC consider trade purpose and the revenue nature of training expenditure in the Business Income Manual at page BIM47080.
Training tax relief for the self-employed and sole traders
For the self-employed, HMRC will look at the existing trade. Provided the training undertaken is to update professional skills and expertise relating to the business, then this expenditure is normally tax deductible. Expenses should be reported when filing your self-assessment tax return.
Training for a new trade as a sole trader is likely to be classified as capital expenditure because the training is providing new expertise, knowledge and skills. Where the training is merely to update expertise already possessed this is a revenue expense, and can be deducted for tax purposes.
Training for directors and employees of limited companies
Providing training for your employees means you have certain tax, National Insurance and reporting obligations. You can claim tax relief on training expenditure for directors and employees providing the training is aimed at improving the skills needed in the business. Allowable training costs are claimed as a deduction when calculating taxable business profits.
HMRC are quite particular about certain types of training. Tax relief on MBA course fees, for example, often aren’t allowed because an MBA is deemed to be offering new skills and knowledge. There are occasional cases where tax relief on MBA fees is allowable, but you would need to demonstrate that an MBA is reinforcing and developing existing skills, rather than creating new ones.
If the training you are providing for your director or employee isn’t work-related (i.e. a finance company paying for a sky-diving course) then you will need to report the cost as a benefit in kind on form P11D and pay class 1a or class 1 National Insurance (depending on whether you arranged the training or your employee respectively).
If you are reimbursing an employee who has arranged and paid for the non-work-related training themselves, you need to add the amount to the employee’s other earnings and deduct and pay PAYE tax and Class 1 NI through the payroll.
Care must be taken if you are providing training to a family member who is also an employee. The training must be to benefit the company, not just as a family favour to the person.
Travel expenditure for training courses
You may also be able to claim tax relief for travel and subsistence when travelling to training courses and also accommodation expenses if you are required to stay overnight. Allowable expenditure includes:
- public transport
- congestion charges and tolls
- hotel accommodation if you have to stay overnight
- subsistence (food and drink)
- business telephone calls and printing costs
You can’t claim for travel if the training is taking place at your usual place of work. Associated training costs, such as books may also be claimed, as long as the training costs themselves are allowable.
As you can see, working out what you can and can’t claim in terms of tax relief on training isn’t as straightforward as you may think. It’s always a good idea to speak with an adviser at HMRC or your accountant if you aren’t sure.