Will Your Training Costs Qualify For Tax Relief?

Kevin Read discusses the current tax relief available for work-related training and looks at proposals to extend it to encourage self-funded training, particularly where ‘upskilling’.

Is tax relief available for training costs? Currently, it depends on whether the individual is self-employed or an employee. For the latter, it also depends on whether the employee or employer incurs the costs.

Tax relief is generally available if expenditure is incurred ‘wholly and exclusively’ for the purposes of the trade or profession, unless capital in nature. This results in a situation where training costs are:

allowed, where the costs are incurred to update existing skills, but 

disallowed, if the training is intended to develop new skills for use in their business (as this is regarded as related to an expansion of the business). 

Beccy is a self-employed lecturer in the financial services industry. If she pays to attend a course on new Stock Exchange regulations, this would be allowable for tax (as she is updating existing skills). 

In contrast, if she pays to attend a ‘Learn to speak French fluently’ course, because it would allow her to start lecturing to those working on the Paris Bourse, such costs would be disallowed, as the training is equipping her with new skills.

Employees

Any training paid for by the employer that makes their employees better able to do their jobs (including equipping them with new skills) will be an allowable expense for the employer and not taxable on the employee.

However, if the costs are incurred by the employee and reimbursed by the employer:

The latter is because (under ITEPA 2003, s 336) expenses are only allowable for an employee if incurred ‘wholly, exclusively and necessarily’ in the performance of duties. 

The courts have consistently made a distinction, regarding training, between preparation for performing the duties of the employment (which may include attending educational courses) and actually performing those duties. Expenses of preparation are not deductible under section 336. See Lupton v Potts ChD 1969, 45 TC 643; HMRC v Decadt ChD 2007, 79 TC 220; and Consultant Psychiatrist v CIR [2006] SpC 557. The latter concerned continuing professional development expenditure incurred by a consultant employed by an NHS trust. 

In contrast, in R&C Commissioners v Banerjee ([2010] EWCA Civ 843), the Court of Appeal allowed the training costs incurred by a trainee doctor employed as a registrar on a training contract as, inter alia, it is a stated contractual duty of the employment to attend various external training courses and to maintain a national training number (see HMRC Employment Income manual at EIM32535 et seq for further details).

In summary, it is preferable to get an employer to pay for training directly, as there are only very limited circumstances in which an employee can obtain tax relief for such costs.

In a recent consultation, the government discussed extending the tax relief available for self-funded work-related training, to support those needing to upskill and retrain, for example, if looking to change career.

There is likely to be a cap on any such allowable costs and the extension of relief could be targeted at lower earners. No date for implementing the proposed changes has yet been suggested.