If you're a business owner, there’s some welcome news. Claiming a tax deduction for your employee's training expenses or updating your own skills has become less challenging. This post discusses the new tax rules for training expenses and how to qualify for a tax deduction.
Overview
Previously, HMRC’s stance on training expenses was restrictive for those that were self-employed. Additionally, there were strict parameters imposed by HMRC for directors and employees who had training costs.
The old approach by HMRC sought to deny tax relief for training expenses which provided new expertise or knowledge. The argument by HMRC was that it would always be capital and not revenue expenditure. Therefore, tax relief for a course to acquire a new skill was not allowable unless the training course was a refresher or update.
What the new guidance says
However HMRC have now updated their guidance to clarify those training expenses which are tax deductible. The aim is to ensure businesses can confidently claim tax deductions when investing in updating existing skills, keeping pace with technology or adapting to changing industry practices.
HMRC now confirm that training course fees will be tax-deductible if wholly and exclusively incurred for the purposes or 'ancillary purposes' of the trade or business.
This means that the costs of any training in your business will now be tax deductible against your profits provided that either it:
HMRC's view is that training expenses unrelated to your existing business (for example, expenditure that allows you to start a new business or expand into a new, unrelated area of your business) will not be tax deductible. This is because HMRC regard it to be capital in nature.
How will this work in practice?
We've reproduced examples below from HMRC's guidance to put matters into a practical context. This list is by no means exhaustive!
Example 1
Karen works part-time as a wedding photographer. She wants to improve her photo editing skills, so she attends an online refresher course on using photo editing software.
Unfortunately HMRC don't mention whether the online course would be allowable if the photographer took the course to use a new type of software.
Example 2
Ryan is a plumber and attends a beginners’ bookkeeping course. Although the course doesn't help Ryan with the skills he needs as a plumber, it will teach him how to keep accurate accounting records. This will help him run his business better. The cost of the course is likely to be an allowable expense.
Naturally HMRC endorse this expense as they want sole traders to improve their bookkeeping skills!
Example 3
Alex is a website designer and takes a course on Artificial Intelligence (AI) technology for online applications. The course will give Alex new expertise in an upcoming area of technology related to her business. The costs are therefore likely to be an allowable expense.’
Because AI is potentially ‘relates’ to any digital or online business, we assume this course will be allowable for most online businesses.
Example 4
Fred is currently unemployed but wants to become a driving instructor and start his own business. He completes a course so that he can become an approved driving instructor and wants to claim the cost of the course as an expense. Disallowed: this is to start a new business that does not already exist.
This makes sense as Fred is not in business
Summary
The new tax rules for training expenses will lead to smarter, more future-proof business decisions. Whether you're self-employed or have a team of employees, upskilling is no longer just a growth strategy—it’s also a tax-efficient one.
As always, the precise facts and circumstances are important. If your are in doubt, seek professional advice to ensure your training investment qualifies.
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