Training - An expense or not?
One of the first questions asked by new bookkeepers regarding their own accounts is can I claim my training costs as an expense. This is a complex area so lets walk through it slowly.
As a sole trader, the training you gain to enable you to start a business is an enduring asset of the business. It’s something that will allow the business to generate income over a prolonged period of time. The fact that training isn’t tangible doesn’t make it any less of an asset to the business. This is where the problems arise. As a business owner you can claim capital allowances for certain assets, but not for training.
So what about some training that allows you to expand your offering? Maybe you want to undertake a course to allow you to offer self assessment, or payroll. Could these be an expense? Unfortunately, the answer would be no here too. These are new skills and therefore have the same problem as your initial training. They create an enduring asset for which there are no capital allowances.
Continued Professional Development is the one category of training that can be expensed. The brushing up of pre-existing skills, or refresher courses. Think about it like redecorating a property you own, or bringing a piece of machinery back to what it once was. You are simply bringing your existing skillset up to date.
Caselaw exists to support this view. In Dass v Special Commissioner and others 2006, the taxpayer traded as a tutor in English and as an advisor in relation to the bringing of appeals before various tribunals. He took a course which would have led to a diploma in law (LL Dip) qualification and claimed a deduction for re-sit examination fees (having missed the original examinations due to illness).
The Special Commissioner decided that the fees were capital in nature:
‘I agree with HMRC that the particular course was one to equip Mr Dass with a new qualification that would have enabled him to venture into new areas of practice, and it was not merely a “refresher” in relation to his existing expertise. This seems to me to be a correct way of distinguishing between the costs (in relation to courses) that constituted capital as distinct from revenue expenditure ... I think that HMRC applied the test correctly and, I was told, in a manner consistently with the treatment of all other taxpayers.’
In the High Court Lightman J upheld the Special Commissioner’s decision on the capital/revenue distinction:
‘The line between the two may often be difficult to draw, but in this case the Commissioner was fully entitled on the material before him to draw the line where he did. Indeed I think that, far from his decision being open to challenge, it was clearly correct.’
As a sole trader, the training you gain to enable you to start a business is an enduring asset of the business. It’s something that will allow the business to generate income over a prolonged period of time. The fact that training isn’t tangible doesn’t make it any less of an asset to the business. This is where the problems arise. As a business owner you can claim capital allowances for certain assets, but not for training.
So what about some training that allows you to expand your offering? Maybe you want to undertake a course to allow you to offer self assessment, or payroll. Could these be an expense? Unfortunately, the answer would be no here too. These are new skills and therefore have the same problem as your initial training. They create an enduring asset for which there are no capital allowances.
Continued Professional Development is the one category of training that can be expensed. The brushing up of pre-existing skills, or refresher courses. Think about it like redecorating a property you own, or bringing a piece of machinery back to what it once was. You are simply bringing your existing skillset up to date.
Caselaw exists to support this view. In Dass v Special Commissioner and others 2006, the taxpayer traded as a tutor in English and as an advisor in relation to the bringing of appeals before various tribunals. He took a course which would have led to a diploma in law (LL Dip) qualification and claimed a deduction for re-sit examination fees (having missed the original examinations due to illness).
The Special Commissioner decided that the fees were capital in nature:
‘I agree with HMRC that the particular course was one to equip Mr Dass with a new qualification that would have enabled him to venture into new areas of practice, and it was not merely a “refresher” in relation to his existing expertise. This seems to me to be a correct way of distinguishing between the costs (in relation to courses) that constituted capital as distinct from revenue expenditure ... I think that HMRC applied the test correctly and, I was told, in a manner consistently with the treatment of all other taxpayers.’
In the High Court Lightman J upheld the Special Commissioner’s decision on the capital/revenue distinction:
‘The line between the two may often be difficult to draw, but in this case the Commissioner was fully entitled on the material before him to draw the line where he did. Indeed I think that, far from his decision being open to challenge, it was clearly correct.’
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