Have to take dividends to pay for training ... ?

[superscarymonster]

Help,

My accountant tells me that under no circumstances can I pay for training directly from my company because it is set up as a personal services company. Therefore I have to pay myself a dividend and pay the tax before I can use this money for a training course.

Actually it is slightly more complicated as my partner wants to set up his own company, funded by investment from my current company, and use part of that investment to pay for a training course. His new company will not be a personal services company but I am told that the same principle applies.

I can't belive that this is the case. For example, I cant believe that KPMG's directors withdraw dividends and pay income tax in order to finance training courses for their employees.

Has anyone else come across this?

[WWW ITDoctors co uk]

I'd say your accountant is incorrect and you would be better off with mine !!

Training and work related literature, manuals, etc are a legitimate expense and can be claimed, even if you are caught by IR35.

I would add that there is no limit on reasonable expense claims if you operate outside of IR35 but inside IR35 you are entitled to claim a maximum of 5% of turnover as expenses in addition to working away from home expenses.

[superscarymonster]

I dont suppose you know of any inland revenue documentation on the matter which says what you can or cant pay with regard to training.

Is there any upper limit? e.g. £20k training course against a £50k turnover?

[www 1staccountancy biz]

Does the training course relate to the activities of the business?

If it's for the benefit of the business & relates to the trade of the company then it will be ok. There are no limitations on the amount you can spend on training as such.

[superscarymonster]

S198(1) ICTA 1998

The training that my partner will take relates directly to his new business (cabinet making). I realise that we can't just pay for it directly from the current business (IT contracting) but I dont see why we cant make an initial investment in the cabinet making business from the IT contracting business. (Did that make sense?!?).

But I am also worried that if I need to go on a £5k IT course I would have to pay for it from personal expenditure i.e. take dividends and pay income tax on it.

The accountant says that "Under S198(1) ICTA 1988 no deduction will be given for training paid for by a worker within the personal services rules no matter how closely related it is to his job, because the expense is not incurred in performance of his duties."

I can't find any inland revenue documentation to say otherwise.

[www 1staccountancy biz]

Re: S198(1) ICTA 1998

The training costs for your partner would be best classified as a loan to the other company. It wouldn't be allowable for tax purposes either way as it's nothing to do with your own IT company and would therefore sit on the balance sheet as an asset, whether it be a loan or otherwise.

Are you caught by IR35? If not then the training costs would be allowable as your own business would benefit and it's within the current trading activities of the company.

[IR35 Avoider]

Re: S198(1) ICTA 1998

Under S198(1) ICTA 1988 no deduction will be given for training paid for by a worker within the personal services rules no matter how closely related it is to his job, because the expense is not incurred in performance of his duties

The key phrase is "paid for by a worker" - if the company pays for the training and you are not trying to claim this as a employee expense when calculating the IR35 deemed payment then there isn't a problem.

[superscarymonster]

Re: S198(1) ICTA 1998

Thanks for all of that.

Incidentally, no, I am not caught by IR35 (to the best of my knowledge).