Training for self-employed assistant & VAT

Client wants to claim VAT on cost of self-employed admin assistant's training course

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It's been months since I asked a daft question so here goes:

A client (owner-director limited company) uses a self-employed person as part-time admin assistant. Neither of them wants to create  a part-time employment. The assistant wants to go on a vocational training course (which happens to be relevant to the client's business rather than admin & might lead to the assistant helping out in more than admin) and the client is willing to fund this as part of paying the admin assistant. Question is: are they able to reclaim the VAT on the course costs?

The net effect of this would be that the assistant ends up saving the 20% input VAT (the net amount being effectively paid via their reduced charges to the client).

My view is that this is not a good idea because it is an artificial arrangement designed to save the VAT. And/or that the VAT isn't reclaimable because it's not properly related to the client's operations but is really part of a payment on behalf of the assistant. But I can't justify that with chapter and verse - and there's a possiblity that it might be ok for reasons I've not spotted. Client keeps returning to this bright idea and I'd like to be able to support my gut-reaction with a bit more evidence.

You may of course say they are possibly already on dodgy ground for other reasons in the IR35 area. And arguably the neatest thing would be to create an employment. But the client wants if possible to avoid taking on employer responsibilities for anyone other than themselves and I can understand that up to a point.

Does anyone have any polite replies?

 

Replies (15)

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By David Ex
08th Jun 2023 13:45

Presumably the invoice will be addressed to the self-employed employee so idea fails at the first hurdle, doesn’t it?

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Replying to David Ex:
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By duncanphilpstate
08th Jun 2023 15:33

My apologies. In the client's mind the training organisation would invoice the client (which is VAT registered) and not the assistant. Hence how they think the VAT could be side-stepped, by including in the client's input VAT and the non-registered assistant's charges t the client being reduced by the net amount of the training cost.

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Replying to duncanphilpstate:
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By Hugo Fair
08th Jun 2023 15:43

So (VATable) supply is to client ... as Jason indicates it will be an uphill struggle to show the direct connection with VAT output by same entity.

And a thought ... any attempt to portray the training as of direct 'benefit' to client is going to automatically suggest that the S-E is a facade (and open up IR35 concerns).

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Replying to duncanphilpstate:
RLI
By lionofludesch
08th Jun 2023 16:13

duncanphilpstate wrote:

My apologies. In the client's mind the training organisation would invoice the client (which is VAT registered) and not the assistant. Hence how they think the VAT could be side-stepped, by including in the client's input VAT and the non-registered assistant's charges t the client being reduced by the net amount of the training cost.

Oh, come on! This is a barter transaction, is it not? The client should be charging VAT to the assistant. Which leaves everybody back where they started.

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By possep
08th Jun 2023 13:51

IR35 may not be an issue. Does the S/E individual do work for others in a S/E capacity? Do they invoice the company and if they do, they are presumably under the VAT registration limit. Their invoice for the reimbursement of training fees will therefore not have a VAT element but just a total that will include the VAT they were charged.

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RLI
By lionofludesch
08th Jun 2023 13:59

I suppose that employment status has already been checked. Being an assistance must inevitably mean that the worker is under some level of control. Not wishing to create a part time employment doesn't mean that one has not been created.

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Replying to lionofludesch:
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By duncanphilpstate
08th Jun 2023 15:34

Sigh. A good point.

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VAT
By Jason Croke
08th Jun 2023 14:01

Have a read of this from HMRC's internal manuals on input tax.
https://www.gov.uk/hmrc-internal-manuals/vat-input-tax/vit13400

Initial view is that the link is not direct enough for the company to reclaim VAT. The training is for the benefit of a third party who is not an employee, the training is not directly benefitting the business, there is the risk the third party can use their newly gained knowledge elsewhere (ie, not exclusive), the training is not a requirement of the work the self employed person does for the business.

Reviewing the above link it does make clear that the cost must be because it is a requirement of the task (and it is referring to things like overnight hotel, subsistence/travel costs and a sub-contractor having to buy tools to do their job which they then pass to the client after the job has concluded), whereas here we're talking about training a third party in a topic they have little knowledge on and with only the promise that the knowledge might be used in the future.

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Replying to Jason Croke:
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By duncanphilpstate
08th Jun 2023 16:01

Thanks for the link and your comments which follow it.
I think this pretty much kills the idea (thank goodness!).
>"The individual incurs the expenditure only in respect of their “employment” by the business." Well no, this is seen by both parties as generalised training and not only in respect of this "employment".
> "The business pays them back at cost, including VAT, dealing with the expense in the normal business accounts." And this is not the way they want to set it up. The business would make the initial payment and recover the cost (net of VAT) from the assistant via an undisclosed reduction in charges. So the business wouldn't really be paying anything if you look at the whole set-up; it's just an intermediate vehicle enabling the VAT reclaim. Which is why I tend to agree there might be a VAT supply in there, which immediately renders the whole scheme pointless, as the assistant ends up paying the open-market cost of the course with no saving to anyone.

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By jonharris999
08th Jun 2023 14:38

I'm on the fence here, because of the slight opacity in OP's first para about who is suffering the cost here - the business or the assistant? - and whose the motivation is - is the new skill going to be used on the business client's behalf, or not? - and the tension this creates with Jason's comment about who benefits.

If the client business benefits, it seems to me that there *is* a case.

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Replying to jonharris999:
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By David Ex
08th Jun 2023 14:57

jonharris999 wrote:

If the client business benefits, it seems to me that there *is* a case.

The OP said “the net amount being effectively paid via their reduced charges to the client” so the client isn’t actually incurring the cost.

EDIT: Or maybe the client is making a VATable supply!

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Replying to David Ex:
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By duncanphilpstate
08th Jun 2023 15:50

I too have wondered whether the client would be making a VAT-able supply.... But they think they see a way round that by "hiding" the transaction in a reduced fee from the assistant.

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Replying to jonharris999:
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By duncanphilpstate
08th Jun 2023 15:48

I think apart from the VAT regs, the opacity is in the client's mind, partly because they are deliberately creating a murky situation, with almost the intent of pulling a fast one.

Ultimately the assistant is bearing the cost as they are losing the cost of the training from the charges they'd otherwise make. But as they are effectively reimbursing the client (who got and paid the invoice from the training company), the cash moves from the client, which additionally covers the VAT and reclaims it.

De facto, the VAT would then have been recovered from HMRC and the assistant gets the training with 20% off. Which is where I think it gets dodgy as any benefit to the client's business is very tenuous.

The skill is realistically unlikely to be used on the client's behalf (although relevant to the business), unless the assistant becomes more deeply embedded in the business which would pretty much have to be as an employee, although I can see another argument developing about that.

At the end of the day, the person with the real benefit is the assistant who has the new skills to take away. The client has some benefit in that they've "saved" themselves the VAT element while funding the assistant's training but only through some jiggery-pokery.

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Replying to duncanphilpstate:
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By SXGuy
09th Jun 2023 10:23

Does sound like a nice way of paying for your mate to learn a new skill and recover the vat at the same time doesnt it.

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Replying to SXGuy:
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By duncanphilpstate
10th Jun 2023 18:26

Roughly where the client is coming from, yes.

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