FAQ: Is training tax deductible?

At Silicon Beach Training we're commonly asked whether training is taxable or vatable so thought we would explain the general UK tax rules for both self-employed and employers here. Many business owners and HR managers presume that any costs incurred on training are tax deductible, however there are some exceptions depending on who is paying and what the purpose of the training is.

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Is training tax deductible for employers?

Training is largely exempt from tax and HMRC defines it as thus: "There is a wide statutory exemption for payments or reimbursements, by employers or third parties, of expenditure on the provision of work-related training." Most training that allows an employee to better do their job is considered a "business expense" and is thus not taxable.

Some additional tax exemption details:

• Training is VAT exempt and also exempt from NIC. This applies to in-house and external training courses.
• Related costs such as travel, child care and training materials are all exempt.
• Incidental overnight expenses are also tax-free, just as business expense usually is.

• There are three main exceptions: if the training is a reward to the employee; if the training is for recreational rather than "work-related" purposes, and if the training is not "necessary" but instead intended to allow the employee to carry out a new job.
• There are also various complications. For example, if training is partly for a reward and partly work-related, then tax will need to be apportioned - although not if the recreational side is only incidental.
• As a rule of thumb, VAT need not be paid for overseas training. However, people from overseas who wish to attend training in the UK will need to pay tax and check their own country's taxing systems.
• Training is only tax exempt if the employer is footing the bill. Unless "an integral part of the duties of employment", different rules apply for employees opting to pay for their own training; see "external education" explained here.

See the HMRC Employment Income Manual for full explanations; it's a bit confusing but you'll find the work-related training section here, under EIM01200 - EIM01300. Alternatively, the information is summarised more clearly under the PAYE section.

Is training tax deductible for self-employed?

The UK rules for training expenses for self-employed are similar but slightly broader. Training expenses will be deductible for tax if accrued solely for the purpose of "the trade"; this rule is in ways more general than the allowances for employers. However, if the training is more of an investment than an expense, then the rules differ. It is advisable to take professional advice if you are self-employed and considering training.

See the SA103 Notes for a list of what counts as an expense for self-employed. For related information try Business Link's Do I need to register for VAT? and see HMRC's section on commonly asked questions specifically about Education and vocational training.

If you have any other training questions, just leave a comment and we'll do our best to help. Alternatively, you're welcome to give our training managers Colin Welch and Alistair Wylie a call on +44(0)1273 6222 72 Monday - Friday, 8.30 am - 5.30 pm.

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