Training costs – Are they Tax Deductible?

Staff training to improve skills or profits can be a major cost for businesses. Many managers and business owners assume that these costs qualify for tax relief, however this will depends on a number of factors including who pays for the training and what it is intended to achieve.

Training paid for by employees

Tax relief will not normally be given if an employee is paying for their own training, even if the purpose of the training is to help them improve in their job.

However tax relief will be given if an employee needs the training to do their job – if it is ‘wholly, exclusively and necessarily incurred’. So the costs will not be deductible unless the training is necessary – for example, training for an employee to carry out a new job would not be deductible.

If an employee pays for their own training and is reimbursed by their employer, this will count as a ‘benefit in kind’ which will be taxable.

Training paid for by employers

Where training is paid for by the employer, the tax situation is different. On the whole, training which enables employees to better do their jobs will be allowable. This even includes general training which may not have an immediate impact on their work.

In tax terms it is therefore better for employees to ask their employers to pay their training expenses where possible, perhaps using a salary sacrifice scheme where necessary. Read more about employment law changes since April 2017 and updates to salary sacrifice arrangements.

Self employed

The tax situation is different again for self-employed workers. If the training is ‘wholly and exclusively’ for the purposes of the trade, it will be tax deductible. This is therefore a much wider definition than that which applies to employees.

However, whether the training is an ‘investment’ or an ‘expense’ must be considered. If it is an investment, such as learning how to develop new products, technically this is a capital item and capital allowances tax relief should be claimed. If you or your business needs to incur substantial training expenses, it is advisable to take professional advice on planning this expenditure.

Since April 2010, employees have had the right to request time off work for training.

For more information or Employment Law Advice please contact us or call 0800 024 1976.

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