Companies may occasionally wish to pay for training or educational courses for directors or employees. When considering such expenditure, it is essential to assess both its deductibility for corporation tax purposes and whether it constitutes a taxable benefit for the individual receiving the training.
Tax Deductible in the Company
The expenditure could be disallowed as a business expense in calculating the company’s corporation tax liability. No tax relief would be given if the expenditure is not incurred wholly and exclusively for business purposes. If the expenditure is part business and part private, then no tax relief will be available.
HMRC state (BIM47080) “Where an employee or director of a company, on whom the expenditure is incurred, has a significant proprietary stake in the business or is a relative of those who do, there is obviously a much greater chance that expenditure may have been incurred not, or not wholly, for business purposes but to provide the employee with some personal benefit.” They go on to give an example of the child of a director being paid university fees is not tax deductible in the company.
HMRC helpfully pose the question “In such cases it is often helpful to ask whether the expenditure would have been incurred on an otherwise unconnected employee doing the same job”. If the answer is no, then the expenditure should be disallowed in the tax computation of the company.
Tax Implications for the Director or Employee
Separately from the corporation tax treatment, it is necessary to consider whether the training constitutes a taxable benefit for the individual. Generally, employer-funded training would be treated as a benefit in kind (taxable on the employee and subject to PAYE). However, Section 250 ITEPA 2003 exempts work related training.
To meet this exemption the training must be paid for (or reimbursed by) the employer and must be “designed to impart, instil, improve or reinforce any knowledge, skills, or personal qualities which are, or are likely to prove, useful to the employee when performing his/her duties or will qualify or better qualify the employee to undertake the employment”. The exemption does NOT apply if, or to the extent that, its purpose is to provide entertainment, reward or inducement.
If the training is partly work related and partly not, then an apportionment can be made. This is in contrast to the corporation tax deduction, which is all or nothing.
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