Can I claim tax relief for training costs?

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:

• Staff development.
• Staff retention.
• Personal growth.

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.

If you are an accountant in practice or industry and would like more information about becoming a 20:20 Innovation member, why not book a free 30-minute demo with our team today.

Can I claim tax relief on training employees?

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:

• Updating the individual's existing skills and knowledge; or
• Developing new skills and knowledge for the individual.

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.

What if the employee is a director?

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.

What can prevent tax relief for training costs in relation to employees or directors?

Proprietary or ownership interests in the business

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.

Capital expenditure

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 conclusion

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.

Does the provision of training to employees constitute a benefit-in-kind?

'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:

• are, or are likely to prove, useful to the employee when performing his/her duties; or
• will qualify or better qualify the employee to undertake the employment, or to participate in charitable or voluntary activities arising through the employment.

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.

What if it is not work related training?

For any training costs that do not constitute 'work related training', the taxation treatment depends on who arranges and pays for the training.

• If the employer arranges and pays for the training - this will give rise to a taxable benefit-in-kind and a requirement for the employer to report the sums to HM Revenue & Customs (HMRC) on form P11D or via the payroll.
• If the employee arranges and pays for the training - the sums reimbursed from the employer to the employer must be treated as earnings as subjected to PAYE and Class 1 NIC through the payroll.

As an individual, can I get a deduction if I pay for training courses that my employer doesn’t provide?

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.

As a business owner, what tax relief is available to me on training?

For self employed sole traders and individuals in partnership with others, provided the training activity is:

• undertaken wholly and exclusively for the purposes of the trade carried on by you,
• with the purpose of up-dating your skills and professional expertise,

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.

What are the problem areas to avoid?

The following scenarios can lead to challenges in obtaining the tax deduction.

1. If a completely new specialisation or qualification will be acquired as a result of you attending the training course, it is unlikely that the expenditure will be treated as wholly and exclusively for the purposes of the existing trade. As a result, it is not tax deductible.
2. If the training expenditure is classed as 'capital expenditure' then this also will prohibit tax relief being given. This is only the case if what is acquired (the skills learned) can be viewed as an 'identifiable asset of sufficient substance and endurance'. This is relatively rare.

Do HMRC publish guidance on what is an allowable expense for training?

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:

• For employers - take a look at the Employment Income Manual, starting at page EIM01200. Also Tax Guide 480 'Expenses and benefits for directors and employees', Appendix 9.
• For business owners - take a look the Business Income Manual, at page BIM42526.

We are also expecting an update from HMRC in 2024.

Can 20:20 Innovation help with providing effective and great value training courses for accountants?

Absolutely, yes!

If you would like more information about joining 20:20 Innovation why not book a free 30-minute demo with our team today or call us on +44 (0) 121 314 2020.