The next step

To the income tax legislation

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The calculations behind the example

[Document]

Tax breaks for staff training

Job training

Ensuring that your workers are properly trained is important, especially where skilled work is involved. It’s equally important to an employee that they have the right qualifications. This will make them attractive to prospective employers and improve their earning potential. As you would expect the rules allow tax relief for employees who pay for job-related course fees, but it’s not all plain sailing.

Job expenses

An employee can only claim a tax deduction if an expense is incurred in carrying out their job. While training will lead to them doing it better, it’s very unlikely it’s actually part of their duties even if the employer requires them to undertake it. For example, a salesperson who pays for a course and obtains a professional qualification in marketing can’t claim a tax deduction for its cost.

Tip. An employer can pay for or reimburse an employee’s course costs etc. and claim a tax deduction against their profits. What’s more, this won’t count as a taxable perk for the employee.

Tax break

Usually where an employer meets a cost that an employee isn’t entitled to claim a tax deduction for, e.g. a training course, it counts as a taxable benefit in kind. But the good news is that a special exemption applies where the training is:

• likely to prove useful to the employee when performing the duties of the employment or a related employment; or
• will qualify or better qualify the employee to perform those duties (see The next step ) .

Tip. It’s more tax efficient for you to pay directly rather than reimburse the employee. This is because where they initially pay and you reimburse them, the cost comes out of their net of tax and NI income. However, if the bill for the training is in your company’s name, neither tax nor NI applies. Plus, it allows you to take advantage of another tax-saving arrangement.

Salary sacrifice

You can use our Tip in conjunction with a salary sacrifice scheme, i.e. you pay for the training in exchange for the employee giving up an equivalent amount of their salary. Because of the tax break you’ll pay less in course fees than you would have paid in salary and you’ll get a more skilled worker into the bargain. The employee gains skills and will be no worse off. As an added incentive you could share a little of the saving you’ll make with them.

Example. Will is an employee in Acom’s accounts department. He intends to pay for an accounting course and exam fees out of his own pocket at a cost of £3,000. As a basic rate taxpayer this uses £4,400 of Will’s gross pay. Instead, Acom agrees to pay Will’s fees if he accepts a reduction in salary of £4,000. This would save Acom over £1,100 and Will £272 (see The next step ).

For a link to the legislation and for the calculations behind the example, visit http://tipsandadvice-business.co.uk/download (CD 16.13.05).