Capital training?

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Psyche
Psyche Registered Posts: 187 Dedicated contributor 🦉
Hi all,
OK so I have been advised by HMRC that training to help a newly self-employed person to run their business well counts as a "new skill" and is considered capital expense, not allowable for tax purposes.

I have never seen "training" on a balance sheet! How would this be accounted for? Would it be amortised, like goodwill? Would you estimate its "useful life" as how long the information will be relevant before a new course in the subject must be taken?

Thanks!

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  • JodieR
    JodieR Registered Posts: 1,002 Beyond epic contributor 🧙‍♂️
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    I'm well aware that training to learn any new skill isn't allowable for tax, but I've never heard of it being capitalised. I've always posted such things to drawings, or included it in the P&L and then made an adjustment on the taxable profits computation.
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    I've always thought disallowable training costs went through the P&L but got added back in the taxcomp.
  • Steve Collings
    Steve Collings Registered Posts: 997 Epic contributor 🐘
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    Hi,

    You cannot capitalise any training costs because an entity cannot 'control' the employee receiving the training (likewise you don't capitalise wages) as the employee or director could leave at any time. The definition of an asset includes the word 'control', hence capitalising training costs would not comply with the statement of principles. I think the confusion here relates to HMRCs use of the word 'capitalise'. It is capital in nature to the employee receiving the training i.e. developing new skills, but certainly not capital in nature in the accounts.

    You would do as Monsoon says and write straight off to P&L and addback on the tax comp.

    Kind regards
    Steve
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    You would do as Monsoon says and write straight off to P&L and addback on the tax comp.

    Hurrah, I got something right, Woop woop :lol:
  • Psyche
    Psyche Registered Posts: 187 Dedicated contributor 🦉
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    I thought it sounded weird, but the HMRC's own guidance says that training in new skills is "capital" expenditure. Maybe I will call them and ask how to capitalise it!
    Thanks for the help
    ~Psyche
  • Psyche
    Psyche Registered Posts: 187 Dedicated contributor 🦉
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    Hi,

    You cannot capitalise any training costs because an entity cannot 'control' the employee receiving the training (likewise you don't capitalise wages) as the employee or director could leave at any time.

    Not when they are self-employed :)
  • Steve Collings
    Steve Collings Registered Posts: 997 Epic contributor 🐘
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    Hi Psyche,

    It makes no difference. A self-employed person is still required to comply with GAAP to calculate their profits for tax purposes.

    Training costs are not capital for the purposes of the accounts, they are administration and general overhead costs.

    Writing off to the P&L and adding back would be the same as capitalising, amortising and adding the amortisation back. You are, however, following correct protocol (the standards) by writing off to P&L and adding back (plus reflecting a true position on the balance sheet).

    Regards
    Steve
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