Training Expenses

Training Expenses

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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

Replies (20)

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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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By bigshot-tycoon
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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By Cant Add Up
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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By martinfoley07
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 User deleted
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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By AnonymousUser
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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By martinfoley07
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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Replying to martinfoley07:
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By Dib
11th May 2018 16:43

Although not helpful to the OP at least MartinFoley 07 can breathe out. HMRC are looking at what to do about self-funded training both to increase skills and learn new ones.

The consultation document was released in the middle of March and comments are invited. The consultation closes on 8 June so plenty of time to get responses in.

I was at the workshop which looked at how to frame the con doc and HMRC and Treasury are very serious about change if it is judged (by responses) appropriate to incentivise people via tax breaks

Hopefully the link is below.

https://www.gov.uk/government/consultations/taxation-of-self-funded-work...

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Replying to Dib:
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By Portia Nina Levin
16th Nov 2018 10:33

To be honest MartinFoley07 might very well have died in the 11 years since this was posted. Nice of you to dig him up though. He'd have appreciated that.

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Replying to Portia Nina Levin:
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By Gone Sailing
16th Nov 2018 10:49

You speak as one who has had many (welcome) reincarnations!

But I'd wager you have a view on this particular grey area.

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Replying to Gone Sailing:
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By Portia Nina Levin
16th Nov 2018 11:14

In ths instance, it's open and shut not for the purposes of the self-employed business, but for the purposes of the individual being able to establish and carry on the business.

For an incorporated business, whilst it might fall within the work-related training exemption for employment tax purposes, and it isn't capital IMO, it would probably fall foul of CTA 2010 s 1064 (where the work-related training exemption) and, therefore, CTA 2009, s 1035.

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Replying to Portia Nina Levin:
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By Gone Sailing
16th Nov 2018 13:44

So, let's say, a person with no accounting or tax skills decides to train in accounts and tax, and then carry on a business providing accounts and tax services.

Firstly, they set up a limited company, contract with training providers, in the company name, to train themselves as an employee of the company, and starts to do some low level bookkeeping and SA work.

Is the limited company able to claim the training expense?

Would any potential expense claim be lost if they didn't provide any services at all whilst training?

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Replying to Gone Sailing:
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By Portia Nina Levin
16th Nov 2018 13:56

You're not listening. Step back a bit.

1) I set up a limited company to provide accountancy services, and I employ somebody to provide those accounting services.
2) That person hasn't got a clue about accountancy, so the company pays to train them.
3) Provided that the company commences a trade of providing accounting services within 4 years of incurring the training expense (pre-trading expenditure rules remember that?), then it gets a deduction for the expenses.
4) Likewise if it chooses to reimburse the employee for training that they have undertaken in the past.
5) In either case, there is no benefit/taxable employment income for the employee, as the work-related training exemption applies.

Now, what if that employee's me?

Then it is arguable that the training expense is within s 1064, so that it gets taxed as a dividend on me. That also has the effect of disallowing the expense under s 1035.

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Replying to Portia Nina Levin:
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By Gone Sailing
16th Nov 2018 17:40

OK, to be fair, I was half listening, the easy bit.
Understood, no BIK.
For 'participators' (close company) potentially a distribution. Have read around other threads, the majority are up for taking the risk. I remember reading somewhere that CPD falls foul of S 1035, which is a little daft.
Common sense though says that an accounting degree cost won't wash, but it's the law that matters. There doesn't seem to be much documented on this - or cases.
Thanks.

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Replying to Portia Nina Levin:
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By Dib
19th Nov 2018 12:36

GPWM - for some reason I failed to spot the age of the thread!

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Replying to Dib:
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By Gone Sailing
19th Nov 2018 13:12

@ Dib: PNL was replying to mine of 16th Nov 2018 09:43, which appears lower down and out of the time sequence, because Sift Media was having a bad hair day.

And resurrecting an old post is ok IMO because the original contributors may have a helpful view.

Your link was interesting BTW but HMRC shut their 'considerations' down.

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Replying to martinfoley07:
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By Gone Sailing
16th Nov 2018 09:43

martinfoley07 wrote:

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).


Helpful, thanks, but if incorporated and allowable, is it capital or revenue? If training is not allowable as Cap All (above), then must be revenue. Could easily create early year losses? 4 year training course / student loan, all allowed? Any recent caes?
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By stephen a
11th May 2018 15:06

To work as a marine engineer on sea going vessels requires a recognised certificate of competence to be issued by the Marine and coastguard Agency. This is mandatory under UK and International Law. No CoC=No work. The CoC last 5 years and must then be re-validated. A merchant seaman is usually only paid while at sea. So are the costs of the revalidation courses (some of which last several days and are therefore residential) allowed for tax purposes? Also to progress through the ranks requires further study and more exams to upgrade to CoC. Are the courses (one of which lasts 12 weeks) eligible for deduction against tax?

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