Making Training Costs Tax Deductible

Most business owners and managers think that training costs aimed at improving skills or business profits automatically qualify for tax relief, but that is not necessarily the case. The complexities of the UK tax system mean that the availability of tax relief depends on who is paying for the training and what the training is designed to achieve.

For employees who pay for their own training, tax relief will not normally be given, even if the sole purpose of the training is to make them better able to do their job. If an employee needs training as a necessity to carry out their job (so that the training is ‘wholly, exclusively and necessarily incurred’) then tax relief will be given. The key word here is ‘necessarily’ as unless the training is necessary, its cost is not deductible. Any training designed merely to enable an employee to carry out a new job does not qualify for tax relief in their hands.

Employees who pay for their own training should bear in mind that expenses paid for by them and reimbursed by their employer constitute a benefit in kind which will be taxable.

The situation as regards tax relief for training paid for by employers is very different. By and large, any training which makes their employees better able to do their jobs (and this includes very general sorts of training which may not have an immediate impact on their ability to do the work) will be allowable.

Clearly, therefore, the sensible thing for an employee to do is to get their employer to pay for their training where possible, using a salary sacrifice if necessary.

For the self-employed, the criteria for determining if training expenses are allowable are somewhat different. Here, training expenses will be deductible for tax purposes if they are incurred ‘wholly and exclusively’ for the purposes of the trade, which is a much more liberal definition than that which applies for employees. However, a further consideration must be taken into account, which is whether the training is of the nature of an expense or an investment. If the latter (for example, the acquisition of know-how to enable new products to be developed) then, strictly, the cost is a capital item and tax relief should be claimed by way of capital allowances.

If you have a need to incur substantial training expenses, it is sensible to take professional advice on how best to structure the expenditure.

Employees have, since April 2010, had the right to request time off for training.