If you or any of your staff took training recently, here’s an important tip your accountant should have told you!
Where a company provides training or reimburses employees for the cost training, any VAT incurred is recoverable and the costs are tax-deductible business expense.
As always, there’s a few caveats to note. No benefit in any kind will arise on the employee, provided the training concerned is a course or other activity designed to impart, install, improve or reinforce any knowledge, skills or personal qualities which:
- Are likely to prove useful to the employee when performing the duties of the employment, or a related employment, or;
- Will better qualify the employee to perform those duties, or to participate in charitable or voluntary activities that are available to be performed in association with the employment or a related employment.
A related employment would include one that the employee might have a reasonable chance of obtaining, such as by promotion.
Let’s take a look at an example with two imaginary characters, Richard and Michael.
Richard employs his son Michael in his small car hire business. Michael can’t currently drive and it would be useful both to the business and to Michael in doing his job if he could.
Accordingly, the company pays of Michael to learn to drive. the costs are tax deductible for the company and any VAT incurred is recoverable, but there’s no benefit in kind for either Michel or Richard.
Because Michael is Richard’s son, the costs might not have been tax deductible if Richard’s business were not incorporated, because HMRC would have argue that they weren’t wholly and exclusively for the purposes of the business.
Where, the employee incurs training costs and these are not reimbursed by the employer, there is a completely different test, which is much harder to pass…
The costs much be incurred wholly, excursively and necessarily in the performance of the duties of the employment. This means training costs are unlikely to be deductible from earnings when paid by an employee and not reimbursed by the employer. In the example above, Michael would not be allowed a deduction as he paid for costs himself.
Where there is a rewards element to the training, costs can be apportioned with the reward element being taxable.
How does this apply if you’re self employed?
The cost of training for a self-employed proprietor of a business is deductible if it’s incurred wholly and exclusively for the purposes of the business, and the training updates existing expertise or knowledge.
Where training for a self-employed proprietor brings about new expertise or knowledge, or leads to a recognized qualification, HMRC considers that it isn’t a tax-deductible business expense.
If this information was new to you, and your accountant hasn’t brought it to your attention yet, I suggest you ask them why. If you do have any questions, I welcome them at firstname.lastname@example.org