TRAINING - 29.06.2018

Providing overseas staff with language training

Training

Providing on-the-job training to your staff is often crucial for safety. If you operate a warehouse, for example, you will need to ensure anyone who operates the fork lift trucks possesses the necessary qualifications to do so.

From your employees’ perspective, such training isn’t a taxable benefit as it is “job related”. Other types of training are less clear cut though.

Languages

If you pay for an employee’s course, say to learn French which isn’t needed for their job, it counts as a taxable benefit. That means it’s part of their remuneration and you can deduct the cost of the course from your business profits. However, this does mean the employee will be taxed on the cost of the perk. The VAT position is more complicated.

General rule

In respect of benefits, the general rule is that you can reclaim the input tax incurred on the costs of providing benefits in kind to employees, which is reassuring. But, in a further twist, you must then account for output tax based on the value of supplying the benefit to the employees.

Tip. There are exceptions to this general rule, but provision of foreign languages is not one of them.

This will mean you have to pay over VAT on a sale you haven’t really made, as it is unlikely you will charge your employees for the cost of providing training. However, there is a different set of rules if you are paying for certain English language courses.

English as a foreign language

Let’s suppose your company has brought some new staff in. Some of these employees are from outside the UK. You feel strongly that their qualifications are going to be valuable to the business, but their English isn’t quite up to scratch for what their new duties will be. You are therefore investigating the possibility of sending them on an English as a foreign language (EFL) course offered by a nearby specialist provider. What are the VAT rules for these courses?

Special rules

Fees charged for private tutoring of EFL courses are exempt from VAT. Where the course is run by an educational establishment such as a college, they are exempt in any case, as usually this type of organisation doesn’t have to charge VAT, but fees for EFL courses are exempt anyway. However, if you’re providing the tutoring as a perk, does the general VAT rule mean you’ll have to account for VAT which would be an extra cost to you?

Tip 1. The good news is that you don’t have to charge VAT. The general rule attaches the same VAT treatment to the perk as the supply to you. In other words, if something you pay for is VAT exempt and you pass it on as a perk, then this is also VAT exempt.

Tip 2. Arrange and pay for courses for EFL or any other training or tutoring that counts as a taxable perk direct with the provider rather than reimbursing your employees. Doing this means they don’t have to pay NI on the cost, which makes it more valuable for them.