We were recently asked by a client whether training costs were tax deductible. As usual, the question is easier to ask than to answer. Consideration must be given both to who is receiving the training and who is making the payment.
Sole Trader or Partner
If a sole trader or partner undertakes training to update and maintain existing skills required for the existing trade then the cost will generally be tax deductible. However, if the training will result in a new skill or specialisation then the cost will not be deductible. The reason is that for any cost to be tax deductible then it must be incurred “wholly and exclusively” for the purposes of the (existing) trade.
Limited Companies & Directors
Essentially, any training paid by the company which makes a director better able to do his job will be tax deductible. This is a lot wider than sole traders or partners, as it can include new skills as well as more general skills such as management skills.
However, from the company’s viewpoint the expenditure must still be wholly and exclusively for the purpose of its trade, so the cost of sending a director of an electrical company, who happened to want to learn how to paint, on a fine art course would not be tax deductible unless the company was attempting to break into the production of fine art.
Employees of a Business
If a business pays for the training costs of an employee then it will generally be tax deductible in the same way as directors above. However, it is highly unlikely that an employee would be able to claim the cost of training against their income. This is because an expense must be “wholly, exclusively and necessarily” incurred in the performance of their duties”. In other words, it must be impossible for the employee to perform their existing work without that training before they can even consider making a claim. Improving an existing ability to do the work better or more efficiently, or extending their ability to perform additional tasks within their existing skill base, is not sufficient to make the training “necessary”. The message to all employees, therefore, is :– Try to get your employer to pay for any training that you want.
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