EXPENSES - 08.06.2006

It’s a language you must use

Language lessons

You pay. You can expect to pay about £50 per week for two hours’ instruction from a qualified teacher, for at least ten weeks to achieve fluency. That’s £500 from your after-tax income, which will cost your company £911 in gross wages and NI (£500/59% = £847 gross wages + £64 employers’ NI), or £738 after Corporation Tax (CT) relief at 19%.

Your company pays. If your company contracts directly with your language teacher to provide your lessons, the cost to the company will be £500, but that expense will be fully tax-deductible as staff training. So the net cost to a company paying 19% CT is £405 (81% x £500). That’s a 45% saving for your company (£738 - £405)/£738 compared with paying you extra salary! Is it really that simple?

Business connection. Your company can get a full tax deduction for any work-related training it provides to its employees, which includes you as a director (s.250 Income Tax (Earnings and Pensions) Act 2003). “Work-related” means any skill the employee may have need of at work either now or in the future, or even when the employee works in a voluntary capacity on behalf of the firm, such as helping a local charity.

For example, as almost any company with a website can expect to receive product enquiries from other countries, foreign language skills are necessary for all staff, particularly those who may need to negotiate overseas contracts.

Other courses

Interesting. The range of courses the company can pay for is quite extensive. For example, if your staff have to drive as part of their job you can provide advanced driving lessons, or for trainees who don’t yet hold a driving licence you can pay for a full driving course including test fees.

Split the difference. Of course you don’t have to fund the full course fees for your employee. You can initially pick-up the full bill but reduce your employee’s salary by a greater amount so they don’t get the increase in take-home pay, and effectively pay for some of the course themselves.

For appropriate wording of a salary sacrifice letter visit http://tax.indicator.co.uk (TX 06.17.03)

For example. For training that will cost £1,000, you reduce the individual’s gross salary by £1,000. This saves the company £128 in employers’ NI, (£1,000 gross salary x 12.8%) but the employee who pays tax at 40% is £410 better off, plus he doesn’t have to pay the course fee of £1,000. So your employee has received an effective net pay rise plus some valuable training.

Trap. If the employee picks up the cost of the course and you reimburse those fees, the amount paid will be taxed as a benefit-in-kind.

Tip.The contract for the training must always be between the provider of the course (driving school, University etc.) and the employing company, not between the course provider and the employee.