Is my training tax deductible? 1

Training Practice Workshop Mentoring Learning Concept

Training courses can be expensive, in this blog we are going to focus on the self employed.

The key rules are contained in BIM42526

Specific deductions: administration: own training courses

Provided it is incurred wholly and exclusively for the purposes of the trade carried on by the individual at the time the training is undertaken, expenditure on training courses attended by the proprietor of a business (either as a sole trader, or in partnership with others) with the purpose of up-dating their skills and professional expertise is normally revenue expenditure, which is deductible from the profits of the business.

Business purpose test

In considering the question of purpose, you should not take an unduly narrow view of whether the content of any particular course only up-dates existing skills of the individual. But if it is clear that, for example, 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.

Capital test

Expenditure on new skills etc may also be capital if what is acquired can be viewed as an identifiable asset of sufficient substance and endurance. See Dass v Special Commissioner and others [2006] EWHC2491 (Ch)

Let’s take the example of Property Courses

There are many property courses available for investors, often the investors are self employed/sole traders/individual investors, the courses can cost thousands.

What courses are claimable:

  • Improving your skills – for example you have a basic understanding of finances but want improve your knowledge of tax

What courses are not claimable:

  • Beginners Day/Novice Courses – any course for beginners or novices would suggest you have no previous knowledge so they won’t be allowed
  • New Skills – you want to learn something new for example you currently let property and want to learn how to do property development

If the course is disallowed the travel costs will also be disallowed

What about companies?

The rules for companies are much easier to comply with and written with a much wider scope..

Income Tax (Earnings and Pensions) Act 2003

Section 250 Exemption of work-related training provision

(1)No liability to income tax arises by virtue of—

(a)the provision for an employee of work-related training or any benefit incidental to such training, or

(b)the payment or reimbursement to or in respect of an employee of—

(i)the cost of work-related training or of any benefit incidental to such training, or

(ii)any costs of a kind specified in subsection (2) in respect of such training.

(2)The costs are—

(a)costs which are incidental to the employee undertaking the training,

(b)expenses incurred in connection with an examination or other assessment of what the employee has gained from the training, and

(c)the cost of obtaining any qualification, registration or award to which the employee becomes or may become entitled as a result of the training or such an examination or other assessment.

Section 251 Meaning of “work-related training”

(1)In this Chapter “work-related training”, in relation to an employee, means a training course or other activity designed to impart, instil, improve or reinforce any knowledge, skills or personal qualities which—

(a)are likely to prove useful to the employee when performing the duties of the employment or a related employment, or

(b)will qualify or better qualify the employee—

(i)to perform those duties, or

(ii)to participate in any charitable or voluntary activities that are available to be performed in association with the employment or a related employment.

(2)For this purpose “related employment”, in relation to an employee, means another employment with the same employer, or with a person connected with the employer, which the employee—

(a)is to hold,

(b)has a serious opportunity of holding, or

(c)can realistically expect to have a serious opportunity of holding in due course.

steve@bicknells.net

Why Doctors should use Salary Sacrifice for CPE 2

Young Doctor with display board

Doctors often agree to pay for their own continuing training personally because of a shortage of NHS funds but when they do pay for courses its unlikely they will be able to claim tax relief.

EIM32530 states that it is well established that employees are not entitled to an expenses deduction under Section 336 ITEPA 2003 for the expenses continuing professional education (CPE). The Commissioners and the Courts have traditionally held that the duties of trainee doctors, for the purpose of the expenses rule, are limited to the clinical work that they do for the NHS Trust by whom they are employed. Their training activities are not undertaken “in the performance of” those duties for the purpose of Section 336 . That is so even though the training activities may be compulsory, and failure to complete them may lead to the employee losing his or her professional qualifications, and/or their job.

The Commissioners and the Courts upheld that view in a number of cases, as follows:

Parikh v Sleeman (63TC75) – a hospital doctor was refused relief for the expenses of attending training courses during periods of study leave.

Snowdon v Charnock (SpC282) – a specialist registrar was refused relief for the expenses of undergoing mandatory personal psychotherapy.

Consultant Psychiatrist v CIR (SpC557) – an NHS consultant was refused relief for the expenses of CPE necessary to maintain her professional qualification.

Decadt v CRC (TL3792) – a specialist registrar was refused relief for the expenses of taking professional examinations, even though it was a condition of his employment that he should do so.

In the recent case of Revenue & Customs Commissioners v Dr Piu Banerjee ([2010] EWCA Civ. 843), the Court of Appeal accepted that a deduction for training costs incurred by an employee should be allowed if the employee was employed on a training contract where training was an intrinsic contractual duty of the employment (see also EIM32535 & EIM32546) and where any personal benefit, unlike most CPE courses, would be incidental and not therefore give rise to a dual purpose of the expenditure.

Salary Sacrifice solves this problem.

Salary sacrifice works particularly well for training because except in the most extreme cases, employees cannot claim a tax deduction for training costs that they pay personally but if the employer pays for training that is work-related:

  • the employer gets the tax deduction
  • the employee is not taxed on the cost and
  • there is no National Insurance to pay.

EIM01210 confirms this.

steve@bicknells.net