Training courses

Conditions

1. GOV.UK's guidance for the self-employed says a sole trader can claim training that helps you improve skills and knowledge you currently use for your business, keep up-to-date with technology used in your industry, develop new skills and knowledge related to changes in your industry, or develop new skills and knowledge to support your business, including administrative skills. You cannot claim for training courses that help you start a new business, or expand into new areas of business that are not directly related to your industry.
2. HMRC's manual states the rule as training that updates existing expertise or knowledge, or provides new expertise or knowledge, in the individual's existing business area (BIM35660). Training to acquire new skills or knowledge to keep pace with advancements in technology and changes in industry practices, related to the owner's existing business area, will usually be allowable, and courses ancillary to the main trade, such as introductory bookkeeping or digital skills courses, may also be revenue expenditure depending on the specific circumstances of each case (BIM35660).
3. Training unrelated to your existing business area — for example, a course that allows you to start a new business or expand into a new, unrelated area of business — is unlikely to be an allowable deduction (BIM35660). In Dass v Special Commissioner, a tutor in English claimed re-sit examination fees for a course leading to a diploma in law; the fees were held to be capital, because the course would equip him with a new qualification to venture into new areas of practice (BIM35660).
4. The expense must also be incurred wholly and exclusively for the purposes of the trade you carry on at the time the training is undertaken (BIM42526; section 34 ITTOIA 2005). HMRC tells its officers not to take an overly narrow view of whether a course only updates existing skills, but where a completely new specialisation or qualification unrelated to your existing area of business or the running of your business will be acquired, it is unlikely that the expenditure will be wholly and exclusively for the existing trade (BIM42526).
5. Training to start a new business cannot be claimed (GOV.UK), and HMRC's example of someone unemployed taking a course to become a driving instructor and start his own business is one where the cost cannot be claimed (BIM35660). Separately, pre-trading relief for a sole trader covers revenue expenses incurred for the purposes of a trade within seven years before trading starts that would have been allowable if incurred on the date trading started, but not capital expenditure (BIM46351; section 57 ITTOIA 2005), and HMRC names section 61 CTA 2009 as the corresponding relief for companies (BIM46351). Whether a course taken before you start trading falls within it is a question to put to an accountant.
6. For a limited company paying for training for its staff, including its directors, HMRC's guidance is that it is not easy to see how the wholly and exclusively rule (section 54(1) CTA 2009) would lead to disallowance of expenditure on the training and development of staff whose relationship with their employer is limited to the employment itself (BIM47080). Where the person has a significant proprietary stake in the business, or is a relative of those who do, HMRC states there is a much greater chance the expenditure was not, or not wholly, for business purposes; 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).
7. For the employee or director, section 250 ITEPA 2003 means no income tax arises on the provision, payment or reimbursement of work-related training. 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 the exemption applies equally to office holders and is mirrored in a NIC exemption (EIM01210).
8. 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). Travel, subsistence and assets have their own limits (sections 252 and 254 ITEPA 2003), and two narrower exemptions cover retraining courses for employees who are leaving (section 311 ITEPA 2003) and individual learning account training (section 255 ITEPA 2003), which HMRC says now survives only in Scotland, as Individual Training Accounts (EIM01200); the staff training entry sets these out.
9. An employee who pays for training themselves normally gets no relief. Section 250 does not give employees tax relief for the costs of self-financed training where the cost of training is not reimbursed by the employer (EIM01210), and HMRC states that no deduction should normally be permitted under section 336 ITEPA 2003 for an employee's external education, even where the subject is closely relevant to the nature of the employment (EIM32525). No deduction is due for the costs of continuing professional education, even if participation is compulsory (EIM32530).
10. The exception HMRC recognises is where the external education is an integral part of the duties of the employment (EIM32525) — typically an employee on a training contract where training is an intrinsic contractual duty of the employment, where any personal benefit would be incidental and not give rise to a dual purpose, and where the other conditions of section 336 ITEPA 2003 are met (EIM32535). HMRC notes that even when training is deemed to be mandatory, this in itself will not be sufficient (EIM32535). If you think the exception applies to you, have an accountant check your contract against it.

Common mistakes

• Claiming a course that helps you start a new business, or expand into an area of business not directly related to your industry. GOV.UK says these cannot be claimed.
• Treating a course as allowable because some of its content overlaps with your work. The test is the purpose of the expense for the trade you carry on when you take it, and a completely new specialisation or qualification unrelated to your existing area of business is unlikely to pass (BIM42526).
• Employees assuming the work-related training exemption gives them relief for training they pay for themselves. HMRC states section 250 does not give employees tax relief for the costs of self-financed training (EIM01210).

What to keep

• Course invoices and a description of the content.
• A note explaining how it relates to your existing work.

Real-world example

A self-employed gas boiler fitter takes a course to learn to install heat pump systems, to future-proof his business. HMRC's manual gives this case as an example: the cost is likely to be allowed, because heat pumps are new technology replacing gas boilers and he is acquiring skills to keep up to date with modern technology (BIM35660). If he instead took a painting and decorating course to move into a different line of work, HMRC's comparable example — a taxi driver doing the same — is one where the cost is not allowed, because it was not incurred for the purpose of the existing business (BIM35660).

Frequently asked