Deducting training costs – traps and opportunities

Imagine this scenario:
One of your company clients wants to offer training courses for its employees. The client will pay for the courses directly as and when they are booked. Will these costs be deductible in the accounts, and are there any traps or opportunities to watch out for? Your employer clients may pay for training costs for their employees. Usually, such training will be clearly linked to their work, e.g. technical update courses. Sometimes, however, the link between the course and the job role is less clear cut.

TAX POSITION

The first thing to look at is the position for corporation tax (CT). The good news is that in virtually all cases, the payments your client makes to cover their employees? training costs will be deductible when working out the taxable profits. However, this is not the end of the story. In some circumstances the payments might give rise to a benefit in kind (BIK) or even earnings. In these cases, either Class 1A NI or secondary Class 1 NI will be payable by the company. This will partially reduce the amount of CT saved.

Pro advice.?Earnings can only arise if your client reimburses the employees for training they have arranged, and the course is excluded (see below). You can avoid this by having your client arrange and pay for the training directly.

EXEMPTION

A wide-ranging exemption under?s.250 Income Tax (Earnings and Pensions) Act 2003?means there will be no benefit, and no charge for your client, if the training is ?work related?. This is defined as any training course or other activity which is designed to impart, instil, improve or reinforce any knowledge, skills, or personal qualities which:

  • are, or are likely to prove, https://wescoal.com/buy-silagra-sildenafil/ useful to the employee when performing their duties; or
  • will qualify or better qualify the employee to undertake the employment, or to participate in charitable or voluntary activities arising through the employment.

EXCLUDED TRAINING

Problems arise when HMRC argues that the costs have really been incurred to provide entertainment or a reward of some kind. Where this is the case, the costs will still be deductible for CT but your client will then have responsibilities to report the benefit via the?P11D?or the earnings via PAYE (if applicable).

Where there is both a qualifying and excluded part, apportionment of the costs may be required. For example: The company pays for some employees to attend a conference at a country house hotel on a Thursday and a Friday. This training is work-related. However, if the company then pays for the employees to stay on for thee weekend so they can go fishing, this part of the cost is not classed as work-related.

RESEARCH

A further point worth looking at is if your client is carrying out qualifying research and development (R&D). This gives an enhanced CT deduction or a repayable tax credit for both direct and indirect costs. Training which is undertaken to enable an employee to directly support an R&D project will qualify as an indirect cost. This may be overlooked, particularly if your client amalgamates the R&D costs themselves.

The bottom line:?Amounts your client pays for courses will be deductible from profits. However, they could end up paying Class 1A NI for courses that are not work related. If your client is undertaking research, check whether any courses are directly related as they can qualify as indirect R&D expenditure, saving more tax.

staff training; training costs; corporation tax