EXPENSES - 31.01.2008

Time to book this year’s training courses

Who wants to be an MBA?

For example. You feel that if your company is to expand further, more business knowledge might be necessary and thus you might want to enrol on, say, an MBA course over three years (some cost £16,000). The tax issues are whether this would be: (1) tax deductible if the company paid for it; and (2) what, if any, are the benefit-in-kind implications of this payment?

Company’s tax deduction

Business purposes. Attendance on a course intended to update the expertise of directors is revenue expenditure and is deductible if it satisfies the wholly and exclusively test (HMRC Business Income Manual para BIM 35660 and BIM 42105). However, if the attendance is to give new expertise, then it is to be treated as an asset of enduring benefit to the business, i.e. no immediate tax deduction.

Director/shareholder. The Taxman’s view is that with a director/shareholder there is a much greater chance the expenditure has not been incurred wholly for business purposes. The test for employees is less biased. (See BIM para 42526.)

Your benefit-in-kind

Normally. When an employer funds a training course there is no benefit-in-kind on any employee, provided that the training is designed to “impart, instil or improve or reinforce any knowledge or skills likely to prove useful to the employee when performing duties of any relevant employment”.

However, there is a benefit-in-kind where the purpose of the training is primarily a “reward for his services or an inducement to continue in employment”(s.250 Income Tax (Earnings and Pension) Act 2003). So this could come back to haunt you during an investigation.

Business plan

However, to find out the Taxman’s current view on this area why not ask him? That’s up-front, before you have incurred the costs. But how can you do this without alerting him to a tax-saving exercise?

Tip 1. Tell the Taxman you are reviewing/updating your P11D dispensations (seeThe next step)and would it now be allowable to include employees’ and directors’ course costs. If you get them included, the company can incur the costs without you worrying about a P11D benefit. If you don’t, then you cancel the idea without having paid out.

Tip 2. Once you’ve got the dispensation, you need to think about your company’s tax deduction for the course. To help with this your company’s board should record a minute detailing the expected benefits of the course. But don’t mention anything to do with capital (e.g. future mergers and acquisitions) or acquiring new expertise or personal benefit to the director.

Tip 3. Then claim a deduction for the course costs in the company accounts. Either claim all of them or none of them. Any suggestion of apportionment between deductible and non-deductible is admitting there is some private benefit, which will fail the “wholly” test for a director/shareholder.

The next step

For more information on what can be included in a dispensation, visit http://tax.indicator.co.uk (TX 08.08.04).