Training and professional development are essential in maintaining a competitive and skilled workforce. The tax treatment of training expenses depends on who incurs the cost – an employer, an employee, or a self-employed individual. The rules are complex and vary in strictness.

This article explores the main principles, with a focus on statutory reliefs available under ITEPA 2003, especially sections 250–254, which provide specific provisions for work-related training.

General principles

To qualify for a corporation tax deduction, an employer’s expenditure on training must be incurred ‘wholly and exclusively for the purposes of the business’. Crucially, this focuses on the purpose of the expense, not its outcome. It is not necessary to prove a direct or immediate business benefit.

HMRC guidance confirms that personal satisfaction or enjoyment derived by the employee from training does not render the expense non-deductible, provided the training is relevant to the business.

Related-party caution

If the employee is also a business owner or a relative of one, HMRC may scrutinise the expenditure more closely. A helpful test is: ‘Would this cost still be incurred if an unconnected employee were doing the same job?’ If the answer is no, the expense is unlikely to be allowed.

Most employer-funded training is not a taxable benefit for the employee, provided it meets the definition of ‘work-related training’.

Qualifying costs include:

• tuition fees and training costs
• examination and assessment fees
• costs for registration, qualifications or awards
• travel, subsistence and incidental expenses such as additional childcare.

The rules apply to any activity designed to impart, instil, improve or reinforce knowledge, skills or personal qualities relevant to the employment. Acceptable formats include:

• online learning or self-tuition packages
• informal or workplace-based instruction
• formal classroom training
• leadership and team-building experiences
• training for charitable or voluntary roles linked to the employment.

Examples from HMRC (EIM01220–01230) include language lessons ahead of a possible overseas secondment, safe-driver training for company car users, health and safety or first aid courses, soft skills training (eg communication or time management) etc.

Incidental and enjoyable elements
HMRC accepts that training may include enjoyable or recreational aspects, as long as the primary purpose is skill development. For example, hotel leisure facilities during a residential course do not require apportionment.

Where a course involves mixed purposes, only the marginal recreational cost should be disallowed. For example, hotel and travel costs for employees staying an extra day to play golf may be apportioned accordingly.

Travel and subsistence for training
If an employer pays or reimburses travel and subsistence for work-related training, the payment is not taxable. However, employees cannot claim tax relief for unreimbursed training-related travel unless the expense meets the stringent ‘wholly, exclusively and necessarily’ test in ITEPA 2003, s336.

Training before employment

A new employer may reimburse training costs incurred before the employment began, provided:

• the expense was incurred at the time the individual became an employee, or
• there is a clear link between the training and the employment.

HMRC accepts that if a person has accepted a job and pays for relevant training prior to starting, reimbursement after the start date can be exempt, assuming the training is clearly related to the role.

Employee training expenses

No deduction should normally be permitted under s336 ITEPA 2003 for expenses incurred by an employee for external education – even where the subject of the education is closely relevant to the nature of the employment. The expenses are not deductible because they are not incurred in the performance of the duties of the employment.

The only exception is where the external education is an integral part of the duties of the employment. HMRC gives the following examples:

Example 1

A trainee doctor employed as a registrar on a training contract is required, as a stated contractual duty of the employment, to attend various external training courses. As part of the duties of the employment there is a mandatory requirement to maintain a national training number by attending a series of training courses and events. Failure to complete the course and obtain the qualification will mean that he cannot proceed to the next stage of his chosen profession.

Attendance at the training events is an intrinsic part of the employment and one of the duties of the employment. The costs of travel to the events, course fees and other associated costs met by the employee are deductible.

Example 2

A trainee accountant is employed by a company to maintain business records and do the bookkeeping of its accounts. As part of his contract of employment, the trainee is required to attend training courses and successfully pass a set of exams in order to become a qualified accountant for the company. The trainee fails some of his exams and must privately pay to re-sit those exams in order to continue his employment.

The trainee’s duties of employment include acting as a bookkeeper for the business. Therefore he is not on a training contract where training is an intrinsic contractual duty of the employment. The training costs incurred are not incurred in the performance of duties of employment and are therefore not allowed as a deduction.

Cost of continuing professional education 

No deduction is due for the costs of continuing professional education (CPE). That is so even if participation in such activities is compulsory, and failure to do so may lead to the employee losing his or her professional qualifications, and/or their job. CPE is not a duty of the employment for the purpose of s336.

However, a deduction for training costs incurred by an employee should be allowed if the employee was employed on a training contract where training was an intrinsic contractual duty of the employment and where any personal benefit, unlike most CPE courses, would be incidental and would not therefore give rise to a dual purpose of the expenditure.

Self-employed: tighter rules on deductibility

The rules for self-employed individuals are far stricter than those for employers.

Self-employed individuals can only claim a deduction for training that maintains or updates skills directly relevant to the current trade. Costs to start a new business, enter a new profession, acquire entirely new skills are treated as capital and not deductible.

Example:

A person training to become a driving instructor before launching their business cannot deduct the course fees.

Updated HMRC guidance

As clarified in the Spring Budget, HMRC will now allow training costs that: keep skills up to date in the existing trade, help the business keep pace with technological or regulatory changes and develop ancillary skills such as digital literacy or bookkeeping. However, training for new ventures or skills unrelated to the business remains non-deductible.

Conclusion

Training expenses can be tax-deductible – but the rules differ depending on the payer and the purpose of the training: employers have broad scope to deduct costs and provide tax-free training. Self-employed individuals must ensure training expenses relate strictly to their existing trade to qualify.