Training costs

The cost of work related training paid for by employers is most typically a deductible employment cost in the computation of the employer's taxable profits. Provided the training satisfies the generous requirements of sections 250, 251 ITEPA 2003, the director or employee is not subject to income tax or national insurance contributions on the cost of the training. 

The training must be designed to impart, instil, improve or reinforce any knowledge, skills or personal qualities relevant to the performance of the employee's duties, or designed to qualify, or better qualify, the employee to perform his duties.

Costs include not only course fees, but associated costs for examinations, travel and personal incidental expenses.

Employers can either pay directly for the training costs or reimburse the employee. Where an employer is unwilling to pay for such costs in addition to an employee's existing remuneration package, the employee, who might otherwise suffer the costs of training personally, would be advised to ask the employer to consider a salary sacrifice arrangement.

In contrast to the employed, the tax deductibility of equivalent training costs incurred by the self employed are deductible in computing trading profits only where the training or education serves to update existing knowledge and is incurred wholly and exclusively for the purpose of the proprietor's, or partner's, trade or profession. The costs of acquiring new skills or qualifications typically falls to be regarded as a capital expense of the business, for which no tax relief can be claimed.

The self employed who are unable to obtain a deduction for education costs, especially where the training leads to the acquisition of a new qualification, should consider the merits of incorporating all, or perhaps just part, of their business, after which they would be a director/employee of the new company, and stand to benefit from the far more generous rules applying to the costs of training provided to employees. In circumstances where the goodwill of the trade or profession is in the nature of non separable goodwill, personal to the proprietor and having no value for tax purposes, a subsequent disincorporation after the costs have been paid should not be problematic.

For those self employed persons who have already incurred non deductible training expenses, it remains possible, even after the training has finished and any relevant qualifications awarded, to incorporate the business with the new employer then subsequently reimbursing the costs already incurred. The Revenue, unsurprisingly, like to argue that the employment must have existed at the time the training was undertaken but Silva v Charnock SpC 332 illustrates that this need not be so.