CPD and tax relief

Do you know the rules around tax relief on your – and your employees' – continuing professional development?

ITEPA 2003, section 336 sets out the general rule regarding deductions for expenses, stating that deduction is allowed if:

  • the employee is obliged to incur and pay it as holder of the employment; and
  • the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment. 

Membership of a professional body will quite often have attached to it a requirement that its members engage in regular training, or continuing professional development, to ensure that the individuals keep up-to-date with current developments in their chosen field.

It is sometimes assumed that if a person has no choice but to undertake this training, then any associated costs should be allowable for tax purposes. Unfortunately it is not as simple as that.

Costs incurred by an employer in respect of an employee’s training are generally allowable as a trade expense, as long as the expenditure was incurred wholly and exclusively for the purposes of the trade. Retraining costs will also usually be allowable.

In the same way, the cost of training undertaken by a self employed person is usually allowable as a trade deduction. The training again must be for the purposes of the trade. ICTA88/S74 (1)(a) prevents a taxpayer deducting expenditure in computing their profits under Case I/II Schedule D unless it is incurred wholly and exclusively for the purposes of the trade, profession or vocation.

If the training results in the proprietor gaining new expertise or knowledge, the current interpretation, under quite strict rules, is that this brings into existence an intangible asset. Therefore the costs are capital in nature and deduction is not allowed. The training must strictly be updating an existing skill in order to be allowable.

In Dass v Special Commissioner, Dass was a freelance tutor. He trained for a diploma in law and claimed a deduction for the examination fees he incurred. The Revenue did not allow the claim, stating that it amounted to capital expenditure. The Special Commissioner dismissed Dass’ appeal as it was found that he had taken the course in order to gain a new qualification.

In most cases, training costs incurred by an employee will not be allowable for tax. This is because an expense cannot be deducted under the general rule for employees’ expenses in Section 336 ITEPA 2003 unless it is incurred ‘in the performance of the duties of the office or employment’. The expense must be incurred in actually carrying out the duties of the job, not in preparing or training to carry out the duties; and it is not sufficient for the expense to be in connection with the job.

A case that illustrates this point is Lupton v Potts in which an articled clerk was refused a deduction for a fee paid to sit the Law Society exams. The expense was not incurred necessarily and exclusively in performing the duties of the employment that the clerk held. Similarly, in CRC v Decadt a specialist registrar was refused relief for the expenses of travelling to and sitting external professional examinations, even though it was a condition of his employment that he should take the professional examinations.

Dual-purpose expenditure is expenditure that is incurred for more than one reason. If one of the reasons is not for business purposes, the expenditure fails the statutory test and then the expenditure is not allowable.

A useful case is Revenue & Customs Commissioners v Dr Piu Banerjee. The conclusion in this case was that the personal benefit of courses attended by Dr Banerjee was incidental and consequently did not give rise to a dual benefit.

To sum up, if training expenditure is for the purpose of the trade, it will be an allowable expense when incurred by an employer. To be allowable for a self-employed person, it needs to be for the purpose of the trade and relate to the updating of an existing skill.

For employees training expenditure is unlikely ever to be an allowable expense as it is not incurred in actually carrying out the duties of the employment.