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Training Expenses

Training Expenses

I have a client who has commenced self employment as a driving instructor. In order to acheive this however he had to take a course in order to pass an exam. This course cost £5,000, my question is is this allowable in his first set of accounts.
Anon

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By frauke
17th Apr 2007 09:16

I'm surprised that you are even asking the question
NO - otherwise everyone would be able to claim the costs to do a course to work! The entitlement is the same as a entitlement to claim the cost of doing a MBA in order to start a business!!!!

Training for the self-employed is only allowed if it is a legal requirement to pay for training to in order to maintain an existing qualification to continue trading.

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17th Apr 2007 10:29

Maybe?
I don't act for any driving instructors, but would have thought that as the course is a specialist course it would be tax deductible as capital expenditure. Whilst I note the point about an MBA, an MBA is a more general qualification in that it carries with it personal development - I don't think a driving instructor course would be much use in anything other that that role.

Refer to http://www.hmrc.gov.uk/bens/ben23.htm

michael

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17th Apr 2007 11:13

,,
Come on people get a grip!!!!!!!


Set up a limited company and then it is deducible for him/her as an employee.

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17th Apr 2007 12:20

oh dear.
Firstly, the previous poster's suggestion (incorporate before you incur the expenditure) is of course the appropriate solution.
But the horse has long since bolted - the questioner puts the expenditure in the very, very past tense. So that was a bad mistake - always take professional advice before you commence any business activity. It really does pay for itself 99 times out of a 100. I guess your client won't be too happy he did not seek your advice in time, but ...

Secondly, the second poster is 100% correct that the expenditure is to be viewed as capital so far as HMRC and the Courts are concerned.
Unfortunately, that is PRECISELY why it is not deductible for Income tax purposes. So far from being a solution, this posting only serves to spell out exactly why it is not deductible.
(unless the poster can find a section in the CAA which gives capital allowances for training ; no-one else has ever found it).

Thirdly, it is of course one of the more ridiculous tax anomolies that such expenditure is not tax deductible for unincorporated businesses, when the Govt (correctly) tells us we must all be more mobile and constantly retrain for new skills and new market environment.

£5,000 is a very nasty amount to incur for a small sole trader when there is no tax deduction.

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By SimonP
18th Apr 2007 20:23

An addendum to my earlier post.
It is possible that the £5,000 can be broken down into elements which in themselves are tax deductible. For example, maybe some of the money was used for fuel, insurance, car hire, stationery etc.

Certainly, I would be looking at the relevant agreement carefully to see how the £5,000 is broken down, just in case.

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By SimonP
18th Apr 2007 20:15

This is the definitive answer from HMRC
I believe the answer is contained within the HMRC Business Income Manual, from which I have reproduced the relevant section below. Hope it helps. The emphasis here is that the business must have been up and running at the time the expenditure was incurred.

The link is http://www.hmrc.gov.uk/manuals/bimmanual/BIM42526.htm


BIM42526 - Specific deductions: administration: own training courses

Provided it is incurred wholly and exclusively for the purposes of the trade carried on by the individual at the time the training is undertaken, expenditure on training courses attended by the proprietor of a business (either as a sole trader, or in partnership with others) with the purpose of up-dating their skills and professional expertise is normally revenue expenditure, which is deductible from profits of the business.

The text of an article on this subject published in TB1G in November 1991 is reproduced at BIM35660.
Business purpose test

In considering the question of purpose, you should not take an unduly narrow view of whether the content of any particular course only up-dates existing skills of the individual. But if it is clear that, for example, a completely new specialisation or qualification will be acquired as a result of the expenditure, it is unlikely that the expenditure will be wholly and exclusively for the purposes of the existing trade. For general discussion of business purpose see BIM37050 onwards.
Capital test

Expenditure on new skills etc may also be capital if what is acquired can be viewed as an identifiable asset of sufficient substance and endurance. For more on the circumstances in which expenditure on intangible assets may be capital see BIM35500 onwards.

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By Anonymous
18th Apr 2007 23:38

Special Commissioners decision
It would be useful to refer to the Special Commissioners' Case of Dass v HMRC accessible at http://www.bailii.org/uk/cases/UKSC/2006/SPC00570.html where the Commissioner ruled that a course to gain a new skill was not deductible as a revenue expense but should be treated as capital. This is distinguished from ongoing "refresher training". Further as Simon quotes from the BIM it could be considered allowable as revenue only "Provided it is incurred ... for the purposes of the trade carried on by the individual at the time the training is undertaken ..." . As it was incurred prior to the trade commencement the costs would appear to fall foul of this provision also and again the Revenue would seek to treat it as capital in my view.

For a related consideration of the increasingly difficult situation for employees paying for their own training, where the good Dr Avery Jones provides what I think is an excellent clinical examination of the "wholly exclusively and necessarily in the performance of the duties" provision, splitting this well known and perhaps over familiar phrase into divisible and independent parts, see the Consultant Psychiatrist case at http://www.bailii.org/uk/cases/UKSC/2006/SPC00557.html

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19th Apr 2007 08:51

Good debate ...
this particular case seems to fail because

(a) Training occurred prior to trade
(b) These were obviously new skills required to undertake the trade

Compare this to a case of mine in which I successfully argued for a deduction for training required for a new franchisee. The key in my case was that the franchise utlised skills already held by the franchisee and the individual had the forsight to start advertising / register with HMRC / do a bit of private work ONE month prior to attending the franchise training week.

Good planning can help even marginal cases.

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19th Apr 2007 13:12

It is absolutely the case....
.......that you should lean over backwards (and sideways, and any other way you can conceivably think of) to find ways of viewing unincorporated business owner training as updating/refreshing existing skill rather than learning new skills. Unfortunately on facts given that seems a contortion too far. But I certainly agree that the original training course contract should be examined with a fine toothcomb to see if there are parts of it that can be dredged up as revenue/refresher.

It is this (very annoying) capital/revenue issue that is so anomolous for re-training in the 21st Century. But I'm not holding my breath about the Govt adressing it - it has been raised ad nauseam before, but they seem ot manage to find ways of ignoring the all too obvious issue. Yes, yes, we must re-train and re-invent ourselves in new guises to cope with the changing world ; no, no, of course it is not OK to offset the cost involved against the income generated by embracing the need to find new skills.

As to the problem of employees paying their own training, that too will become more and more of an anomoly as that type of expense is also on the increase. BUT, for owner manged incorporated businesses, it is of course easily avoided so long as the course is booked, contracted for and paid by the company and not the individual. That can get a bit hairy when new client comes along with request for a new company to go with his new exciting venture and he has already booked the course and paid, but so long as he hasn't actually done the course/training it is usually easy enough to rectify (although some course providers can be a pain in the neck in re-doing the paperwork).

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