Staff training

Conditions

1. For the employer, the test is the wholly and exclusively rule — section 34(1) ITTOIA 2005 for a sole trader, section 54(1) CTA 2009 for a company. HMRC states it is not easy to see how that rule would lead to the disallowance of expenditure on the training and development of staff whose relationship with their employer is limited to the employment itself, including development of an employee's skills and attributes which may not be directly related to their current job, such as training that would only become relevant if the trainee won promotion (BIM47080). Nor does the expenditure fail just because the employee may derive considerable personal enjoyment or satisfaction from the training (BIM47080).
2. The position is different where the employee or director has a significant proprietary stake in the business, or is a relative of those who do. HMRC states there is a much greater chance that the expenditure was incurred not, or not wholly, for business purposes. Its extreme example is that there could be no allowance for the educational costs of the business proprietor's son who is employed in the business during university holidays, and it suggests asking whether the expenditure would have been incurred on an otherwise unconnected employee doing the same job (BIM47080). Where an expense is incurred for more than one purpose, the wholly and exclusively rule does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade (section 34(2) ITTOIA 2005, section 54(2) CTA 2009). HMRC tells its officers to distinguish a definite part or proportion of an expense laid out wholly and exclusively for the purposes of the trade, which should not be disallowed on the ground that the entire expense is not, from an expense incurred for a dual purpose, which should be disallowed (BIM37007).
3. On capital, HMRC finds it difficult to imagine circumstances likely to occur in practice where the benefit of better-trained staff could be viewed as an identifiable capital asset, and it would not regard the cost of training staff to use new equipment or systems of a capital nature as itself capital (BIM47080).
4. For the employee, section 250 ITEPA 2003 means no income tax arises on the provision of work-related training or any benefit incidental to it, or on the payment or reimbursement of its cost, of costs incidental to the employee undertaking the training, of expenses incurred in connection with an examination or other assessment, and of the cost of obtaining any qualification, registration or award the employee becomes entitled to as a result (section 250 ITEPA 2003). HMRC states it does not matter whether the employer incurs the expenditure directly or reimburses the employee, that the exemption applies equally to office holders, that there is no territorial limitation on training location, and that the exemption is mirrored in a NIC exemption (EIM01210). Incidental costs include the additional travel or child care costs made necessary by the training course, but not the routine everyday costs of travel or child care (EIM01240).
5. Work-related training means a training course or other activity designed to impart, instil, improve or reinforce any knowledge, skills or personal qualities which are likely to prove useful to the employee when performing the duties of the employment or a related employment, or will qualify or better qualify the employee to perform those duties or to participate in charitable or voluntary activities available in association with the employment or a related employment (section 251 ITEPA 2003). A related employment is another employment with the same employer, or a person connected with it, which the employee is to hold, has a serious opportunity of holding, or can realistically expect to have a serious opportunity of holding in due course (section 251(2) ITEPA 2003). HMRC states there is no restriction on the way the training can be delivered, and it does not matter whether training is delivered internally or externally, or on a part-time or full-time basis (EIM01220).
6. Travel and subsistence the employer provides or pays for are covered only to the extent that, on the assumptions that the employee undertook the training as one of the duties of the employment and incurred and paid the expenses, mileage allowance relief would be available for the travel, or the expenses of the travel or subsistence would be deductible under Part 5 of ITEPA 2003 (section 252 ITEPA 2003). Subsistence for this purpose includes food, drink and temporary living accommodation (section 252 ITEPA 2003).
7. The exemption does not apply to the extent the provision is for any of three purposes: entertainment or recreational purposes unconnected with the training; an unconnected inducement to remain in or accept an employment with the employer or a person connected with the employer; or rewarding the employee for performing the duties of the employment or performing them in a particular way (section 253 ITEPA 2003). Expenditure for a mixed purpose, intended in part to reward and in part for genuine training, will need to be apportioned, but apportionment is not necessary just because an element of genuine training is enjoyable or recreational — for example, the use of a hotel's swimming pool and leisure facilities during a residential course (EIM01210). Where apportionment is necessary, HMRC taxes the marginal cost of the reward element (EIM01250).
8. The exemption does not cover an asset that is not a training-related asset. A training-related asset is one provided for use only in the course of the training, or in the course of the training and in performing the duties of the employment; training materials provided in the course of the training, which include stationery, books or other written material; or something the employee makes in the course of the training (section 254 ITEPA 2003).
9. Narrower exemptions sit alongside section 250. Section 311 ITEPA 2003 covers the payment or reimbursement of retraining course expenses for an employee who is leaving or has left, subject to conditions on the course and on the employment, and section 74 ITTOIA 2005 and section 74 CTA 2009 allow the employer a deduction for those expenses on the same conditions. Section 255 ITEPA 2003 covers individual learning account training given by someone other than the employer, though HMRC states there have been no ILA provisions in the United Kingdom since 15 October 2017, with Scotland retaining the scheme as Individual Training Accounts (EIM01200). Where an employee is paid while enrolled full-time at a university, technical college or similar establishment, HMRC points to separate guidance on those payments (EIM32525). If any of these may apply, ask an accountant.
10. This entry covers training the business provides for its employees. Training for the business owner themselves is covered in the training courses entry, which applies a different test (BIM35660). An employee who pays for training themselves gets no help from section 250, which does not give employees tax relief for the costs of self-financed training where the cost is not reimbursed by the employer; HMRC says relief for employees meeting their own costs should be considered under its separate guidance (EIM01210). That guidance normally allows no deduction, with a narrow exception where the external education is an integral part of the duties of the employment (EIM32525); the training courses entry sets it out.

Common mistakes

• Conflating the employer's deduction for staff training with the owner's own training. HMRC deals with them separately: staff training and development at BIM47080, the owner's own training courses at BIM35660.
• Treating a reward as training. A payment or reimbursement of training costs is not exempt if its purpose is to reward the employee (EIM01210), and a golfing weekend paid for after a residential course is taxable as a reward even though the course costs are not (EIM01250).
• Assuming enjoyable elements make a course taxable. HMRC states apportionment is not necessary just because an element of genuine training is enjoyable or recreational (EIM01210).
• Putting a family member's education through the business. HMRC's example is that there could be no allowance for the educational costs of the business proprietor's son who is employed in the business during university holidays (BIM47080).

What to keep

• Invoices from training providers or course organisers, showing the course title, date, and fee.
• A note of the business purpose and which employees attended.
• For travel and subsistence paid as part of the training: receipts and a note linking the costs to the training event.

Real-world example

A limited company sends two customer service employees on a three-day communication skills course and pays for their travel and hotel. For the company, the cost is normally allowable, because their relationship with it is limited to the employment (BIM47080). For the employees, the course is work-related training exempt under section 250 ITEPA 2003, and the travel and hotel are covered to the extent section 252's conditions are met. If the company also paid for a golfing weekend at the hotel after the course, the cost of that weekend would be taxable as a reward (EIM01250).

Frequently asked