Employed and self-employed individuals should have a level-playing field when it comes to tax relief on work-related training expenses, says the Association of Taxation Technicians (ATT).
The Government is keen to encourage more individuals to undertake training to upskill, change career, or earn more money and is looking at whether tax-reliefs for training costs could be extended to support this. At present, the rules for tax relief on training costs depend on whether the individual is employed or self-employed. In each case there are situations where the individual will not receive any tax relief for any work-related training costs they pay for personally.
For the self-employed, tax relief is generally allowed where the costs are incurred to update the individual’s existing skills, but denied if the individual invests in training to develop new skills to use in their business. For employees, where an individual pays for work-related training costs personally, and is not reimbursed by their employer, then there are only very limited circumstances in which that individual can obtain tax relief for those costs.1
Between an employee and the self-employed there is also an imbalance where both are seeking to develop a new work-related skill. For the self-employed individual there can be no relief as noted above. However if an employee has their course paid for by their employer, there are no tax consequences for the employee on the benefit that they have received and their employer will receive tax relief for the costs incurred.
Jon Stride, Co-chair of ATT’s Technical Steering Group, said:
“We are pleased that HMRC are consulting on extending tax-relief for training costs to help support individuals to undertake, and benefit from, life-long learning.2 We would like to see that, as far as possible, employed and self-employed individuals have a level-playing field for tax relief on work-related training costs. Tax relief for such training costs should be available regardless of whether the individual is employed or self-employed, learning a new skill or updating an existing skill.
“Self-employed individuals are often surprised and disappointed to find that relief is not available for the costs of acquiring new skills to develop their business. It is interesting to note that if the same business was incorporated and run as a limited company - so that the individual became an employee of their own company - they could then direct the company to pay for the course. In that case, provided the course was genuinely for the benefit of the business, the company should receive corporation tax relief on the costs with no tax consequences for the individual.
“We appreciate that extending tax relief is likely to have an initial cost to the Treasury, but anticipate that this would be offset in the longer term as the economy benefits from a more skilled workforce.”
Notes for editors
- Where the employer does not reimburse the employee’s training costs, the employee can only claim tax-relief for the costs personally if the employee is obliged to incur and pay the cost as part of their existing employment contract and the costs are incurred wholly, exclusively and necessarily ‘in the performance of their duties’. Generally, training is undertaken to prepare for the duties of the employment, or to improve performance of the duties. The cases where training is actually part of the actual performance of employment duties are limited although the rule does allow relief for certain NHS contracts where training is part of the duties of the role.
- A Government report highlighting the benefits of life-long learning can be found here.
- The ATT’s submission to the Treasury can be found here.