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Tax relief on training costs for a director where the director is not taking a salary

This is a scenario presented by a subcontractor who currently offers bookkeeping services as a sole trader. He's looking to form a company which will invoice for bookkeeping services with a projected income of say £10K over the year. The director will not take a salary or draw dividends at the moment but is looking to put through ACCA training costs of around £5K as an expense to the company.

Would this arrangement  be treated as a benefit on the director personally and would it qualify for tax relief?

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By Pushkin
23rd May 2012 06:46

training costs

In my view its the arrangement will work - its not a benefit in kind and will qualify for tax relief against the companies profits.

 

As the training is work related (see below) there are no BIK  implications - no reporting or PAYE/NIC  http://www.hmrc.gov.uk/paye/exb/a-z/t/training.htm

This applies to employees and office holders.

 

The training costs will also be an allowable expense for the company.

 

The training will be job related as defined in ITEPA 2003 Section 250  "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 orwill qualify or better qualify the employee to undertake the employment, or to participate in charitable or voluntary activities arising through the employment.

The training must relate to the employee’s current employment ..." 

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23rd May 2012 08:58

Just curious...

CCL,

...why this person wishes to go about the provision of bookkeeping services and paying for their training in this way. 

Based soley upon the information given, and assuming the person will not move into the higher rate income tax bracket, there doesn't seem to be any immediately obvious advantage to operating through a limited company - given the more rigourous reporting requirements and that - as a director - they will not be allowed to provide any more services under the ACCA rules than they do as a sole trader.

tladirect

 

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There is a potential problem here

The reason benefits (including exempt benefits) satisfy the wholly and exclusively test to be an allowable CT deduction is because they are remunerative.

The work-related training exemption though has an exclusion that says the training can't be remunerative and benefit from the exemption.

So HMRC could argue that it's not W+E to which you counter with "but it's remunerative", thus blowing the work-related training exemption.

There may be a business purpose, but there's also a private purpose, which would mean the expenditure is not W+E and a tax charge could then also arise under S.1064 CTA 2010 (close company benefit distributions).

Still probably worthwhile doing though, if the risks are understood.

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By DMGbus
23rd May 2012 13:34

Staff training costs allowable; proprietor not

In real world experience the cost of training staff is tax allowable (*) and does NOT form a benefit in kind.

For a sole proprietor the training costs would be similarly allowable for an employee but NOT for the proprietor of the business.

This is why a Ltd Co trading format makes sense in this situation.

(*) The costs are outlayed for the benefit of the employer's business and hence allowable (would be a different matter if the training was NOT relevant to the employer's business).

 

 

 

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By CCL
23rd May 2012 21:28

Great, thanks for the feedback everyone, It's reassuring to know that it could pass muster if challenged. My concern was that because the there's no PAYE scheme and the director wasn't drawing a salary (and therefore not strictly an employee), HMRC could challenge the commercial nature of the trading income vs the training costs.

(to tladirect, I believe the reason for the company rather than sole trader was exactly because of the restrictions that apply to training costs for a proprietor over an "employer")

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