During interview negotiations with a new member of staff it was agreed that my client would pay the costs of the employee leaving their old employer i.e. the penalty clause in their training contract. The employee is currently undertaking a BEng which is an essential qualification for my client’s line of work and will continue his studies for another year before graduating, whilst working for my client.
Are there any tax implications of this, or is this exempt for tax, BIK etc as it is essential work related training.
TIA
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When job was advertised it was said that it was essential that the engineer had a degree, or was working towards a degree in Structural Engineering.
When job was advertised it was said that it was essential that the engineer had a degree, or was working towards a degree in Structural Engineering.
Has your client paid for "essential work related training"? A clue: the answer's no.
Employment income: work-related training: reimbursement of pre-employment training expenses: Silva v Charnock (SpC332)
Sections 250 and 251 ITEPA 2003
An employer may recruit an individual as an employee on terms that include the offer to reimburse the costs of training that the individual started, and perhaps completed, before the employment began (‘pre-employment training’).
Compare and contrast
my client would pay the costs of the employee leaving their old employer i.e. the penalty clause in their training contract.
So if it was worded differently it would be ok?
No, if the facts were different, the tax analysis might be different.
So how would you qualify for pre employment training costs? I thought it was quite common place for this sort of negotiation in large companies?
One of the qualifications for claiming a deduction to taxable profits for work related training, is to have paid for work related training. Your client has not, he's paid the penalty clause in an employment contract, which is not the same thing.
The information you've given says that the payment is to cover a penalty clause in their contract with the old employer not reimbursing the employees training costs.
The question is which of these two things the employment contract states.
A leaving penalty that is calculated with reference to training costs.
A payment from the employee to pay for training they have already had.
I would say it is more likely to be the former. Even if it is the latter, is the employee really paying for training, which would be required to meet the "pre-employment training" requirement. They are likely to be at least one step removed from whoever did the training.
Either way, this is more a legal question than an accounting one. You need to establish the legal status of the "penalty clause" before you can even think about claiming.