Reply to: Training and tax position

[TheCyclingProgrammer]

So if your business is IT, you could argue that pretty much any IT course is claimable. It it came to an investigation then with a good amount of arguing you would probably just have to pay the tax avoided if the expense was eventually disallowed.

I think the rule is to prevent people expensing something completely off the wall like an IT consultant doing a photography course or something.

This is my view on this too. I also think the intention is to prevent somebody for learning a new skill totally unrelated to their line of business. So if yiur a software developer and are learning a new technology or language I don't think this is necessarily outside the scope of your business activity.

It's quite subjective because it depends on how broadly you want to define your "business activity".

[LisaContractorUmbrella]

No, please.....don't jump, we need more agreement in this world and esp here lol

[malvolio]

It is a skill the OP used until recently (5 yrs) that has become stale and needs refreshing. It has nothing to do with the skill(s) they are using to earn right now. Stop confusing it by making it seem relevant. It is not. There does not need to be a relationship between the two at all.

Of course it's the OP's call. If the OP takes a salary commensurate with market rate for those skills and their personal tax position makes it viable then I would suggest it's commercially sensible for the company to claim it. Otherwise not, it's a simple decision really.

5 years in technical IT is not "recent". And the BIK argument is actually predicated on what they do to earn money, sadly.

It is certainly not clear cut. However it is sufficiently marginal that I would risk it.

[tractor]

...

So basically we're in agreement then so I'll just

No, please.....don't jump, we need more agreement in this world and esp here lol

[tractor]

...

Well yes, but I can also understand his accountant's viewpoint; Oracle performance management is not a necessary element of architecture or development (although awareness is arguably useful, it is not a prerequisite) .

However the accountant is there to advise and to be cautious. If the OP feels the cost is justifiable. that's his decision, not his accountant's. In this specific case, I would probably be tempted to allow the claim for in not being a BIK, but only the OP can do the sums to work out the risk/reward ratio. If it's a few hundred in taxes to gain a significantly better earning capacity, it may be worth it.

It is a skill the OP used until recently (5 yrs) that has become stale and needs refreshing. It has nothing to do with the skill(s) they are using to earn right now. Stop confusing it by making it seem relevant. It is not. There does not need to be a relationship between the two at all.

Of course it's the OP's call. If the OP takes a salary commensurate with market rate for those skills and their personal tax position makes it viable then I would suggest it's commercially sensible for the company to claim it. Otherwise not, it's a simple decision really.

[LisaContractorUmbrella]

Yep, we are in agreement there

This is why I made the point that HMRC would likely look at the reality of the contract between the director and the company (where have we heard this before) and say if you are paid min wage, it is a sham. If you are paid a salary commensurate with an 'employed' specialist at market rate, then it is less likely to be a sham. In which case, if that salary puts you in a higher tax bracket, then you are between a rock and a hard place and a commercial decision then has to be made; claim VAT plus 20% of the training costs to corporation tax or stump up the extra in personal tax/NI. That is the trade off.

Seems sensible to me and it also prevents some of the sharper practices we often hear about (of course not from some of our esteemed posters, they are all legit and wouldn't claim the cost of a postage stamp if it saved them a quid )

So basically we're in agreement then so I'll just

[malvolio]

My emphasis so that we don't lose the OP's quandary in the noise.
....

Well yes, but I can also understand his accountant's viewpoint; Oracle performance management is not a necessary element of architecture or development (although awareness is arguably useful, it is not a prerequisite) .

However the accountant is there to advise and to be cautious. If the OP feels the cost is justifiable. that's his decision, not his accountant's. In this specific case, I would probably be tempted to allow the claim for in not being a BIK, but only the OP can do the sums to work out the risk/reward ratio. If it's a few hundred in taxes to gain a significantly better earning capacity, it may be worth it.

[tractor]

...

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.

Yep, we are in agreement there

This is why I made the point that HMRC would likely look at the reality of the contract between the director and the company (where have we heard this before) and say if you are paid min wage, it is a sham. If you are paid a salary commensurate with an 'employed' specialist at market rate, then it is less likely to be a sham. In which case, if that salary puts you in a higher tax bracket, then you are between a rock and a hard place and a commercial decision then has to be made; claim VAT plus 20% of the training costs to corporation tax or stump up the extra in personal tax/NI. That is the trade off.

Seems sensible to me and it also prevents some of the sharper practices we often hear about (of course not from some of our esteemed posters, they are all legit and wouldn't claim the cost of a postage stamp if it saved them a quid )

[tractor]

Hi,

I am currently contracting via a ltd company. My work is mainly software architecture and development, but I would like to retrain to bring myself back up to speed on some skills that I used to have (specifically Oracle database performance - which I did for 12 years, but have lapsed in the last 5 years).

My accountant tells me that I cannot pay for this training via the ltd as its not directly in support of the current main business focus, implying that I would need to first get a contract which involves some degree of Oracle performance work. Is this correct? Seems like a catch-22 situation.

Cheers,
Karl.

My emphasis so that we don't lose the OP's quandary in the noise.

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.

I don't think it is lack of clarity, I agree with Contreras, it's just another contractor myth possibly started by lazy accountants who know HMRC will fight it and they want an easy life so they just say 'not allowed here' and expect you to just back off.

Your first para gets it exactly. That is what the whole OP was about, refresher training for an old skill that is becoming useful again. I don't see that as an edge case and I am putting forward the view that in the advice I have seen and how I read the regs, the specific training the OP is talking about would likely be allowable. Clearly, if the OP's accountant refuses to allow it in the accounts, the options are to bring the accountant onside or to change accountants.

[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.

[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

[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.

[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

[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

[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.