Q: Is tax relief available for training costs when setting up a new trade in a limited company?
A. Corporation Tax Relief is generally available for officer and employee training costs. Income Tax Relief and National Insurance Relief is also available to officers and employees who receive work-related training.
Where a limited company provides training to officers and/or employees a corporation tax deduction is available as long as the expenditure meets the basic requirement of being wholly and exclusively for the purpose of the trade. In most cases, the company will be providing training so employees can better perform their duties in the trade or to advance the company’s trade and a deduction will be available. HMRC considers trade purpose and the revenue nature of training expenditure in the Business Income Manual on page BIM47080.
Employees (including officers) are subject to income tax on the benefit received under ITEPA 2003. Exemptions for income tax and national insurance are available for ‘work-related’ training. The term is self-explanatory, but the strict definition of work-related is provided in the Employment Income Manual at page EIM01220.
Where a company provides training costs to any officer or employee which is not work-related, for example, a company manufacturing widgets sending its Finance Director on a candle making course, the costs of the training is not work-related and is therefore taxable as a benefit in kind for the director. The benefit is reportable on the director’s p11d.
The cost of the candle making course is, however, a deductible expense for corporation tax purposes, as it is part of the Finance Director’s remuneration package, and their employment is wholly and exclusively for the purpose of the company trade.
This guidance does not apply to sole traders or partnership businesses.