Training and tax position

[Contreras]

Here you go BIM42526 - Specific deductions: administration: own training courses These are the instructions regarding training costs that HMRC give their little inspector types.

HTH

Lisa, I believe that guidance is for self-employed, not Ltd Co. employees, so not applicable to this discussion.

[Contreras]

Is it time to kick another Contractor Myth into touch?

Fact: A company is trading the moment it advertises its service(s). It follows that the company's "Trade" is not defined purely by actual contracts landed.

If a company is operating with a view to tender for contracts within the definition of it's SIC code then by definition that *is* its trade.

Fact: The employee's (or office holder's) duties are not defined solely by their fee earning capacities. There are administrative functions, book-keeping and preparing accounts for example.

Hiring a new employee with specialist skills (for contracts not yet landed) *is* a deductible expense, even if the company is unsuccessful in its bids. Subbing out work to a 3rd party, e.g. preparation of accounts, is also a deductible expense.

If the company wishes to train an existing employee to do those same duties then the training *is*, by definition, related to the employee's duties.

The published guidance on Section 250 ITEPA 2003 seems quite clear:

The exemption in Section 250 ITEPA 2003 removes any possible tax charge where an employer, or a third party, incurs expenditure on work-related training for employees. It does not matter whether the employer directly incurs the expenditure or reimburses the employee's expenditure. The exemption covers sums that would otherwise be taxable as earnings, as benefits, or under the vouchers rules. The exemption from tax applies equally to office holders.

So what qualifies as "work-related training"? Conveniently, HMRC have defined that for us:

For the purpose of the exemption in Section 250 ITEPA 2003 (see EIM01210), "work- related training" is defined as any training course or other activity which is designed to impart, instil, improve or reinforce any knowledge, skills, or personal qualities which:

• are, or are likely to prove, useful to the employee when performing his/her duties or
• will qualify or better qualify the employee to undertake the employment, or to participate in charitable or voluntary activities arising through the employment.

There are exceptions, as you might expect, but NOTHING to support the often repeated view that training must relate to a pre-existing fee earning contract.

Employment income: further education and training costs: introduction
Employment income: work-related training: general
Employment income: work-related training: meaning of

Btw, I am well prepared to stand corrected but please do provide hard facts in support if you want to be believed.

[malvolio]

You continue to miss the key point; what is an "Employee"?

Hint: you aren't one.

[tractor]

...

You continue to miss the key point; what is an "Employee"?

Hint: you aren't one.

The only way you could possibly know that is if you are his wife, accountant or he is your sockie.

The only definition that I could find quickly was Duhaime "A person who has agreed by contract to perform specified services for another, the employer, in exchange for money". Whether the term Employee is still not defined in statute or case law, I don't know but if the OP has a contract with HIS own company, that would seem to fit the rules in a positive fashion.

IMV, Contreras is correct, there is nothing in the regs that prevents training in a field related to one's duties. If those duties are bound by contract, then the costs are admissable and are likely not subject to taxation as per the guidelines.

Here is one view that seems sensible and it covers training paid for by employees, employers and the self-employed.


This provides an even clearer picture for training paid for by a limited company which covers training for employees including company directors.

As long as it is not a holiday or reward, any related training is allowable.

One thing is clear, if you pay for the training personally, then claim it back it is far less likely to be allowable because and only then does it have to pass the wholly, necessary and exclusive test. So expense any training through the company, make sure it is relevant and you should be ok. IANAL.

[TheFaQQer]

You continue to miss the key point; what is an "Employee"?

Hint: you aren't one.

"The exemption from tax applies equally to office holders." and I am one.

[LisaContractorUmbrella]

How could you possibly KNOW that?

The only definition that I could find quickly was Duhaime "A person who has agreed by contract to perform specified services for another, the employer, in exchange for money". Whether the term Employee is still not defined in statute or case law, I don't know but if the OP has a contract with HIS own company, that would seem to fit the rules in a positive fashion.

IMV, Contreras is correct, there is nothing in the regs that prevents training in a field related to one's duties. If those duties are bound by contract, then the costs are admissable and are likely not subject to taxation as per the guidelines.

Here is one view that seems sensible and it covers training paid for by employees, employers and the self-employed.


This provides an even clearer picture for training paid for by a limited company which covers training for employees including company directors.

As long as it is not a holiday or reward, any related training is allowable.

One thing is clear, if you pay for the training personally, then claim it back it is far less likely to be allowable because and only then does it have to pass the wholly, necessary and exclusive test. So expense any training through the company, make sure it is relevant and you should be ok. IANAL.

There's a difference between being an employee for tax purposes and for employment law purposes - you can be one without the other - HMRC don't make it easy

[tractor]

...

There's a difference between being an employee for tax purposes and for employment law purposes - you can be one without the other - HMRC don't make it easy

I know I alluded to that with the definition that I could find, but if you follow the links below, there are 'other' tax pro's views on the matter too, the last link actually covering the case of directorship and training. Even HMRC would have a job making it difficult if you have a proper employment contract with your company and you are paid a salary. I guess the relevant point would be whether that salary was representative of an equivalent role undertaking duties that the training was for?

I did look quickly but I couldn't readily find any tax rulings or tribunals on the matter. I might have a look later if this rumbles on

[malvolio]

Perhaps it 's just a lack of clarity, but I've been told by several accountants over the years that for personal training to be a non-BIK it has to be directly related to your fee-earning work. I sell Service Management expertise mostly, which is a fairly broad area, but I can't claim for training in cost accountancy or ice-cream making if I fancy a change of direction. Clearly someone in coding or web design can claim for learning a new language or middleware framework but not for conversion into a PM, for example. You also can't claim for learning sales, cost accountancy and presentation technique on the grounds of having a company to support; you don't actually earn money from those activities directly (although obviously they are good things to know about).

As always we're arguing about edge cases.

[Contreras]

There's a difference between being an employee for tax purposes and for employment law purposes - you can be one without the other - HMRC don't make it easy

You're right, HMRC can have you as both an employee and non-employee in different contexts as it suits them. However in this instance they do make it very easy:

THE EXEMPTION FROM TAX APPLIES EQUALLY TO OFFICE HOLDERS

Employment income: work-related training: general

[LisaContractorUmbrella]

I know I alluded to that with the definition that I could find, but if you follow the links below, there are 'other' tax pro's views on the matter too, the last link actually covering the case of directorship and training. Even HMRC would have a job making it difficult if you have a proper employment contract with your company and you are paid a salary. I guess the relevant point would be whether that salary was representative of an equivalent role undertaking duties that the training was for?

I did look quickly but I couldn't readily find any tax rulings or tribunals on the matter. I might have a look later if this rumbles on

Sorry I think that HMRC's perspective is that they won't like anything they perceive to be a 'sham' arrangement - anything can be written in a contract but if doesn't reflect the reality of a situation they're not going to go for it.