We sometimes get asked by employers about the tax rules on training. Most employers know that if they pay for a member of staff to attend a training course, that will not be a taxable benefit for the staff member. But how far does that exemption extend?
The rules which enable training funded by an employer, not to be a taxable benefit, are much more generous than the rules which enable an employee to claim a tax deduction for the cost of training. If the employee bears the cost, then only very exceptionally can a tax deduction be claimed. The expense has to be incurred ‘wholly, exclusively and necessarily’ in the performance of the employment duties. As all three conditions have to be satisfied, it is very unlikely that an employee will be entitled to any deduction for training costs he or she meets. For example, in one case, a headteacher of a primary school, required to teach history, attended, and paid for himself, a series of weekend lectures on history. He lost his claim for tax relief on two grounds. First, in attending a lecture himself, he was not acting in the performance of his duties. Second, this was an expense that not ‘each and every occupant of the particular office is necessarily obliged to incur’.
By contrast if the employer funds the training, then provided the training is designed to “impart, instil or improve or reinforce any knowledge or skills likely to prove useful when performing duties of the employment or a related employment”, there is no taxable benefit to the employee. In fact the relief extends to any training that will enable the employee to participate in any charitable or voluntary activities that are available to be performed in association with the employment.
The fact that there may be a personal benefit to the employee is not relevant, as long as there is some work connection. There will be a taxable benefit when the training is provided only:
• for the purpose of unrelated leisure activities;
• as an inducement to stay in the job, or to take up employment;
• as a reward for the director or employee doing their job.
However, if there is some skill or knowledge being imparted which is likely to prove useful to the employee, the training is exempt. This would include, for example, acquiring leadership or team playing skills.
There is no restriction as to how the training can be delivered. For example, it can be self-study packages, e-learning, class room based, outdoor, work experience or placement. The training can be short, an hour or less, or it can extend over a number of years, such as an MBA or masters qualification in a relevant subject.
The relief applies where the employer pays the provider direct or where the employer reimburses the employee specifically for the training. The employer should not give the employee an allowance for training, as that would be subject to tax and national insurance deduction and the employee would not obtain relief for the cost of the training.
For more information, please contact Mark Wildi on 01689 877081.