Staff training – avoid the tax pitfall!

Make sure that your company pays for staff training (and get the invoices for training made out to the company). This is better than directors or employees paying for training and then asking the company to reimburse them. This is because of the notoriously tight rules for employee expenses.

Where directors or employees pay for training themselves and put in an expense claim to the company, the cost is only allowed for tax purposes if the training has been incurred incurred “wholly, exclusively and necessarily in the performance of the duties of the employment”.

Case law going back many decades shows this to be an extraordinarily tight condition. An employee may gain some personal benefit, or the expenses may not be incurred in the performance of the duties – very few costs incurred by employees meet these stringent tests.

By contrast, there is a statutory exemption for “work-related training” where the costs are borne by the employer – such costs are deductible in calculating the employer’s profits but not taxable on the employee (no BIK). The rules are widely drawn to encompass “any knowledge, skills or personal qualities” likely to prove useful for work.

Conditions apply, but they are not onerous, and a wide variety of training may be provided as a tax-free benefit by the employer. A great example is getting your company to pay for an employee’s driving lessons – it would be very easy to argue this would prove useful for work!

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David Elliott

Chartered Accountant, BSC, FCA

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