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Course/exam fees

Course/exam fees

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Hi all.  I seem to have a blind spot for sole traders who need training to offer services.

So say I was a dentist and decided to set up on my own. 

I start my own surgery and I get dentisting!  I realise that I am not as good as I thought I was at X-ray procedures and a few other things, so I book myself onto a few courses and pay £1,000.

That is the update of existing skills and so is deductible,

I then decide that the way forward is a new technique that is becoming popular where you swap peoples teeth around in their mouth.  I have never done this before, it is a new technique and carefully controlled, so a certificate is needed to do the procedure.  I spend £1,000 getting training and pass the exam, getting a certificate for my wall.  I then add a line to my price list for permutodontics and start to put it into practice.

This is new knowledge and allows me to do a new area, so it is of enduring benefit and is capital.

Finally I realise that, although I am great at root canals, I need a certificate to actually do them.  So I spend £100 taking an exam with no training, pass and add a line to my price list.

That is capital as it is allowing me to carry on a new area, even though I already knew it all.

Would that be correct?  Ok, so there might be wiggle room as to specifics but in essence, am I right?

Replies (12)

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By Steve Kesby
13th May 2015 11:25

You are correct...

... that that is how your facts fit in with HMRC's view of the position.

I call them facts, but they sound ever so slightly made up.

I'd be looking to argue the position of the permutodontics training/exam and the root canal exam, along the following lines.

Self-employed means exactly that; the proprietor employs themself in the business, and the expense would be an allowable expense if incurred in respect of an employee.

Just like when an employee receives the training, there is no enduring asset created as far as the business is concerned; it is the person receiving the training that has been improved, and they are free to leave that business if they wish and take their skills elsewhere (personal goodwill is not a transferable asset of the business remember; HMRC say so).

Thus the expense has been incurred wholly and exclusively for the immediate purposes of the business, with any improvement made to the proprietor, being nothing more than an incidental effect of the expense (and not a purpose of it, that was in the proprietor's mind at the time of incurring the expense).

With a little time I could cross-reference that argument to HMRC's manuals.

Thanks (1)
Replying to Matrix:
Quack
By Constantly Confused
13th May 2015 11:39

Thanks

Steve Kesby wrote:

... that that is how your facts fit in with HMRC's view of the position.

I call them facts, but they sound ever so slightly made up.

Gosh I hope so, that permutodontics procedure sounds super painful! :)

Thank you, I know there is room to argue the position, but I just wanted to make sure I was starting on solid bedrock before I tried to rebuild my understanding of the treatment of training expenses.

Glad I am on the right lines to start with.

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By Outofpractice
13th May 2015 12:06

Sorry Steve but I don't agree...
Any accountancy course you go on (accounting technicians & professional levels) all say the same as the HMRC position if it was an employee doing any training either new/existing skills its allowable but if it a/the sole trader themselves brushing up on existing skills allowable new skills not allowable and is capital.

I competely see your point about how it could be seen as a S/T being employed by the business but they aren't they own the business & get the benefit of profits (if there is one), picking and choosing work to take on if they are fortunate, choosing when they work, an employee does not so they are not & should not be seen as the same.

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By jsr7096
13th May 2015 12:32

Training for new skills

Is the cost of training for the owner allowable under e.g. Annual Investment Allowance?

 

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Replying to Matrix:
Stepurhan
By stepurhan
13th May 2015 12:40

No

jsr7096 wrote:
Is the cost of training for the owner allowable under e.g. Annual Investment Allowance?
Annual Investment Allowance is available for specific types of capital expenditure. Just because training for a sole trader is considered a capital expense does not make it eligible for AIA.
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Nigel Harris
By Nigel Harris
13th May 2015 13:44

Stick to the law

I'm not entirely convinced by any of these arguments. Would any of the respondents like to quote references to the taxes act that back up their argument? I think we all have a vague idea of the issues here, but at the end of the day tax is law, and it's what he law says that counts (and not necessarily HMRC's interpretation of the law either).

For my part I would probably have treated all these expenses as allowable CPD, there's a very fine line between updating old knowledge and acquiring new -after all, if you knew it already why would you go on the course?

It's a similar argument to the capital vs repairs issue - clearly the asset will be better after the repair than it was before, but that doesn't make the expenditure capital.

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Replying to Ultra:
Quack
By Constantly Confused
13th May 2015 14:14

I never know what to put here

nigel wrote:

For my part I would probably have treated all these expenses as allowable CPD, there's a very fine line between updating old knowledge and acquiring new -after all, if you knew it already why would you go on the course?

It's a similar argument to the capital vs repairs issue - clearly the asset will be better after the repair than it was before, but that doesn't make the expenditure capital.

 

But bringing an asset back to its original acquired state (or thereabouts) and creating an enduring benefit are two separate things. 

I've been on many courses where I 'knew it already', either to refresh my memory or to prepare for an exam.  I would treat the former as deductible and the latter as capital, as the exam brings into existence an asset of sorts, proof that I know my onions. 

I do find it odd that I would treat a refresher course with an exam as capital and a refresher course for its own sake as revenue though, but that feels like the correct way.

#Edit# Posted before stepurhan's wise words on the middle ground :)

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Stepurhan
By stepurhan
13th May 2015 14:11

Middle is the issue

I think the middle one is the most contentious, being a new field.

But I'd be perfectly happy claiming for the last one. I see having to take the exam as akin to the licence fee you have to pay in other professions. The hypothetical dentist already had the skill, but needed to pay the fee to legally be allowed to use that skill in the business. No different to a pub owner needing a licence to sell alcohol really.

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Nichola Ross Martin
By Nichola Ross Martin
14th May 2015 10:32

Root canal certificate

HMRC will no doubt argue that you have incurred expenditure on creating an intangible asset, so disallow that cost on that basis.

Topping up expertise - your CPD type stuff is not actually creating anything new, plus most professional have ongoing requirements for CPD. 

Self employed follow s34 ITTOIA 2005, HMRC quotes Dass http://www.hmrc.gov.uk/manuals/bimmanual/BIM35660.htm

Employees have specific exemptions for education and training (see Part 4 ITEPA 2003), so you cannot really compare like with like. Case law for employees that is similar to the query is Snowden v Charnock

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By 1 2
14th May 2015 11:22

I'm not one for quoting legislation...but if that were my client, I think I'd be happy putting them all through and trying to argue the case.

Whilst some of them are improving/adding slightly to an existing skill, in my view it should follow the same logic as replacing single glazed with double glazed windows.  Yes it is an improvement...but only because times have moved on so what's "normal" has changed.

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By Steve Kesby
19th May 2015 12:35

To clarify

Whilst I accept that it is HMRC's stated view in BIM35660 that training for a proprietor is capital expenditure on a capital asset that does not necessarily mean that they are correct.

That is, however, current revenue practice, and it is, therefore, appropriate, that that be the view set out in "any accountancy course you go on".

CC's opening post is, of course, the best advice to clients, because of that.

That does not, however, mean that it is correct. Neither necessarily is the decision in Dass, which is easily distinguished because of its extreme facts (English teacher training to be a solicitor).

The capital argument cannot be correct, because the business does not acquire an asset of enduring advantage; it is the individual that has been enhanced. And the proprietor does not belong to the business; the business belongs to the proprietor.

HMRC have always been quick to argue that "personal goodwill" (the attributes of the proprietor, including their personal intellectual property) are assets of the individual and not of the business and so cannot be transferred on incorporation, for example.

The creation of this personal intellectual property, cannot, therefore, be capital in relation to the business.

If it is a purpose of the expenditure to improve the proprietor for the long-term, then that seems to me to fail the wholly and exclusively test, rather than be capital.

If the purposes of the expenditure is to provide real and immediate benefits to the existing business, then that seems to me to satisfy the test, and any capital element is an enhancement of the proprietor, rather than bringing about an asset of enduring advantage to the business.

I do agree with Nichola that you cannot compare the employee exempt training benefits position, with the deductibility of proprietor's training expenditure position. I agree that that isn't comparing like with like. It wasn't the comparison I was making.

I think you can directly compare the deductibility of expenditure on employees training with the deductibility of expenditure on the proprietors training, where the training has the same business purpose; both are employed (in the wider sense) within the business, after all.

In case anybody wants to look it up, I think Nichola means Silva v Charnock though, which relates to the work-related training exemption, rather than Snowdon v Charnock (which concerns a different point).

If we take CC's permutodontics example a little further. Imagine that CC is the proprietor and also has an employee dentist. All the other dentists in town are now doing permutodontics, and so it is important that CC's dentistry business now incorporates permutodontics.

CC can either do the permutodontics training herself and the employee will then have to do more of the ordinary dentistry. Or CC can send her employee to do the permutodontics training and do more of the ordinary dentistry herself.

The cost is the same. The purpose of the expenditure is the same. The outcomes are the same in terms of the profitability of the business.

Different tax treatments though?

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Nichola Ross Martin
By Nichola Ross Martin
15th May 2015 11:47

Actually

 I did mean Snowden v Charnock in my post.

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