Tax efficient ways to finance employee training

How to account for the cost of staff training is something we are frequently asked by clients and the answer is never straightforward. There are always a number of factors to consider and the issue of whether tax relief can be claimed, or a course classified as a tax-deductible expense, comes down to what the course actually does for the individual in relation to his or her job role.

First of all, to understand HMRC’s thinking, it is important to understand their stance on the matter of employee expenses as a whole. To be tax deductible, any expenses incurred must be “wholly, exclusively and necessarily incurred IN the performance of” the employee’s duties with their employer. This also applies to training courses. However, it may be possible for tax relief to be claimed by the employee, depending on the circumstances.

Here are two scenarios to consider which help illustrate how best to account for training costs.

1. Employees being trained to undertake a specific job role
Where an employee needs to acquire a new skill in order to do a particular job required of them by the company, the cost is likely to be tax deductible. For instance, if you have a warehouse, and one of the operatives is being moved from goods despatching to driving a forklift truck, he or she will need a license and specific training. The cost of this training will be a tax deductible expense for the company as it is a requirement of the job. It will not be a taxable benefit on the employee as there is no direct personal benefit. Similarly, if you employ a trainee finance executive and they need to have training in, for example, Sage software, this will be a tax deductible expense for the company and will not be a personal benefit to the employee.

2. Employees undertaking further courses to enhance their professional skills
Where an employee undertakes some extra qualifications, perhaps doing an MBA or professional qualification, this can be a grey area for tax purposes. Where an employee is undertaking a professional qualification which is required for their job role, it is likely the employer will pay for this as they view it as a job requirement. In this case it will be tax deductible for the employer and will not be a benefit for the employee. In the case of a broader qualification such as an MBA, unless it is a requirement for the job, it is likely that the employee will meet the cost personally and they will find it very difficult to claim this cost as a tax deductible expense, as it is of personal benefit to them, and not incurred “wholly, necessarily’’ etc. Even if you consider this in context of a promotion, getting an MBA may put the employee in a position to do a different job, but HMRC will not consider that it was incurred ‘’wholly, exclusively and necessarily IN the performance of’’ the employee’s duties.

If an employer recognises that a qualification has a benefit to the company and the job role, it may be possible for the employee to arrange to finance the cost of the course personally from their gross income, as part of a personal salary sacrifice scheme. This can have tax advantages.

In summary, our advice to clients when planning training is to consider whether it is “wholly, exclusively and necessarily” incurred for the job role, as outlined above. If the training does not meet this condition, consider offering the opportunity for employees to benefit from further training through a salary sacrifice scheme.

To discuss ways your business can benefit from tax relief, please contact Lesley Stalker by emailing las@rjp.co.uk.