Paying for Employee Training

Posted: 2nd March 2011

It is well known that the rules regarding expenses that are allowed as deductions from income for tax purposes are far stricter for employees than they are for the self-employed. The relevant legislation gives a self-employed person the right to make a tax deduction when the expenditure is ‘wholly and exclusively’ for the purposes of the trade. For employees, the expenditure must also be incurred ‘necessarily’, meaning that it is something which must be spent to enable them to do the job. This one word stops much expenditure being deductible for employees.

A recent case reaffirms the point. It involved a psychiatrist, who undertook a training course and claimed the cost on his tax return. Despite the desirability of the training and the fact that it was clearly undertaken to make him better at his job and for purely job-related purposes, the Commissioners had no hesitation in disallowing the expenditure.

In general, it will be sensible for employees to arrange with their employers that any job-related training is paid for by the employer, who will normally get the cost of the training allowed as a deduction from profits for tax purposes. If the employee pays and the cost is (as is normally the case) not allowed for tax purposes, they are effectively paying for the training out of income after tax and National Insurance Contributions.

Normally, if the employer pays for the employee's training and the employee takes a salary sacrifice to cover the cost, both will save on NI contributions and the employer will get a tax deduction for the cost of the training.