01 Dec 2023
As an accountant in practice, you are working with a wide spectrum of businesses. The owners of those businesses increasingly see that professional training and upskilling are essential for:
This article explores tax relief for training courses. What we cover applies to business owners, your team and for individuals. We also consider the advice and support that accountants in practice can provide on these topics.
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Whether a sole trader, partnership or limited company, the costs a business owner incurs on training courses are usually classed as business expenses. So, to answer the question are training courses tax deductible, then yes. Training is normally fully tax deductible from the business' trading profits; thereby generating income or corporation tax relief. They are a revenue expense.
The fundamental principle is whether the expenditure on training courses has been incurred 'wholly and exclusively' for the purposes of the business in question.
This is the case whether the training courses are:
The deductible training cost includes any related training materials as well as travel and subsistence costs.
Non work related training is not a business expense.
The same priciple applies to a limited company funding the training costs of a company director, whether refreshing existing or developing new skills. This will usually be tax deductible.
This would include training on leadership skills or soft skills for example.
In rare cases, there may be barriers to tax relief where the employee or, more likely, the director of a company has a significant proprietary stake in the business, or is a family member of those that do. This does not immediately prohibit tax relief but does increase the chance of the training expenses not being incurred 'wholly and exclusively' for business purposes.
Please refer to the guidance below for business owners.
Another issue to watch out for is capital training expenditure.
This is rare and would only arise if the benefit the business obtains from the expenditure by way of better-trained staff is of such a substantial and enduring nature that the expenditure can be viewed as incurred on an identifiable capital asset.
The nature of the training course, whether online courses or in person, whether leading to a qualification or not, does not affect the availability of training tax relief. This is good news!
In the vast majority of cases businesses can claim tax relief for training related business expenses. Companies will do this on their corporation tax return and unincorporated businesses will do so on their self-assessment tax return.
'Work-related training' that is provided by an employer to an employee does not give rise to a taxable benefit-in-kind. This means that the employee does not need to pay PAYE tax on the value of the training and the employer does not need to pay Class 1A National Insurance Contributions (NICs).
'Work-related training” is defined as any training course or other activity which is designed to impart, instil, improve or reinforce any knowledge, skills, or personal qualities which:
For the 'work-related training' exemption to apply, the training must relate to the employee’s current employment or to a related employment.
There is no restriction on the way the training can be delivered. Self-tuition packages, online or distance learning, work experience or work placement and informal teach-ins are all acceptable as are more formal classroom based methods. It does not matter whether training is delivered internally or externally, or on a part-time or full-time basis.
For any training costs that do not constitute 'work related training', the taxation treatment depends on who arranges and pays for the training.
Tax relief for employment related expenses can be quite difficult. This is because relief is only given where the expenses are incurred wholly, exclusively and necessarily in the performance of the duties of your employment.
As such, tax relief cannot usually be claimed for training courses funded privately. This is so even where the subject of the education is closely relevant to the nature of the employment. The expenses cannot be relieved for tax purposes because they are not considered to be incurred in the performance of the duties of your employment.
Where possible, it is always preferable for an employee and employer to agree on a fair programme of training to be provided as part of the employee's remuneration package.
For self employed sole traders and individuals in partnership with others, provided the training activity is:
then this is usually tax deductible as revenue expenditure.
For example, an accountant staying up to date with tax legislation would be considered a cost incurred wholly and exclusively for tax purposes.
The following scenarios can lead to challenges in obtaining the tax deduction.
Yes but it can be a little hard to locate and apply to the circumstances in hand because of the range of scenarios and tax treatments, as discussed above.
For further guidance see:
We are also expecting an update from HMRC in 2024.
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