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Training Costs to be expense or capatalise?

sarahuk3sarahuk3 Feels At HomeRegistered Posts: 31
Good Evening all,

Just a quick question, my husband is self employed and he is looking at paying around £6000 for a training course (will be paid monthly)

He works as an aerial engineer and the course is to be a qualified electrician.

Am I right in thinking that this should be capitalised?

Thank you for any help!

Sarah

Comments

  • NeilHNeilH Trusted Regular Registered Posts: 547
    Possibly neither...

    Hi

    Training costs cannot be capitalised as they are a characteristic (so to speak) of the person, and not an asset of the business. In addition, training expenses are only tax deductable if they relate to an existing occupation (CPD, relicensing etc). If the costs relate to obtaining brand new/separate skills (e.g. a car mechanic retraining as a hairdresser) they are not tax deductable.

    Neil
  • uknittyuknitty Experienced Mentor Registered Posts: 591
  • clegganatorclegganator Well-Known Registered Posts: 184
    For a general rule of if it capitalisable think of MC Hammer. If you 'can't touch this' you can't capitalise this...
  • JaffasGirlJaffasGirl Trusted Regular Registered Posts: 387
    For a general rule of if it capitalisable think of MC Hammer. If you 'can't touch this' you can't capitalise this...

    i love this!
  • PGMPGM Font Of All Knowledge Registered Posts: 1,954
    NeilH wrote: »
    Hi

    Training costs cannot be capitalised as they are a characteristic (so to speak) of the person, and not an asset of the business. In addition, training expenses are only tax deductable if they relate to an existing occupation (CPD, relicensing etc). If the costs relate to obtaining brand new/separate skills (e.g. a car mechanic retraining as a hairdresser) they are not tax deductable.

    Neil

    So in this case it wouldn't be allowable for tax?

    How does it work if its a company training a new staff member, is it allowable because its an existing operation of the business?
  • NeilHNeilH Trusted Regular Registered Posts: 547
    PGM wrote: »
    So in this case it wouldn't be allowable for tax?

    How does it work if its a company training a new staff member, is it allowable because its an existing operation of the business?

    Hi

    Generally, yes, if a company is paying for an employee's training it is tax deductable on the part of the company and there is not BIK if the training is provided in line with the employee's job. However, if the employee were to pay there own fees (AAT study fee's etc) they wouldn't be able to claim them as tax deductable.

    Neil
  • PGMPGM Font Of All Knowledge Registered Posts: 1,954
    That explains it, thanks Neil.
  • clegganatorclegganator Well-Known Registered Posts: 184
    NeilH wrote: »
    However, if the employee were to pay there own fees (AAT study fee's etc) they wouldn't be able to claim them as tax deductable.

    Neil

    But if it was written into their contract of employment that they have to under go that training then it is. See the case of Revenue & Customs Commissioners v Dr Piu Banerjee; http://www.hmrc.gov.uk/manuals/eimanual/eim32530.htm

    Fully intend to take advantage of that if I get a new job...
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    Agreed, an employer can claim the costs of employee training (including that of directors in certain cases).

    Sarah, if your husband is learning a new skill to put himself in a position to trade as an electrician, then I'm afraid none of the training costs are allowable in any way. Yes, you could capitalise them in the business (it is a cost of the business and thus can go in the accounts), but there are no tax allowances.
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    For a general rule of if it capitalisable think of MC Hammer. If you 'can't touch this' you can't capitalise this...

    MC Hammer never heard of intangible assets then?! :lol:
  • PGMPGM Font Of All Knowledge Registered Posts: 1,954
    Monsoon wrote: »
    MC Hammer never heard of intangible assets then?! :lol:

    Hammer Time?
  • Steve CollingsSteve Collings Experienced Mentor Registered Posts: 997
    Monsoon wrote: »
    Yes, you could capitalise them in the business (it is a cost of the business and thus can go in the accounts)

    I wouldn't be capitalising training costs at all - the authority you would need to look to is IAS 38 at paragraph 69 which specifically says that training costs are to be immediately expensed as and when incurred.

    Kind regards

    Steve
  • clegganatorclegganator Well-Known Registered Posts: 184
    If he were to be making a hole in a wall it would be....

    Hammer (drill) time!!! Tenous I know...
  • sarahuk3sarahuk3 Feels At Home Registered Posts: 31
    So i can't even claim them as an expense of the business?

    Even though he works with aerials and satellites and being an electrician just expands the work he can do on site and will be earning money from this?

    Tax allowances being he won't be able to put the cost on tax return?

    sarah
  • PGMPGM Font Of All Knowledge Registered Posts: 1,954
    NeilH wrote: »
    Hi
    In addition, training expenses are only tax deductable if they relate to an existing occupation (CPD, relicensing etc). If the costs relate to obtaining brand new/separate skills (e.g. a car mechanic retraining as a hairdresser) they are not tax deductable.

    Neil

    sarahuk3 wrote: »
    So i can't even claim them as an expense of the business?

    Even though he works with aerials and satellites and being an electrician just expands the work he can do on site and will be earning money from this?

    You could argue its only expanding his current job role. How does that compare to a purchase ledger clerk being trained up to chartered financial controller?
  • NeilHNeilH Trusted Regular Registered Posts: 547
    PGM wrote: »
    You could argue its only expanding his current job role. How does that compare to a purchase ledger clerk being trained up to chartered financial controller?

    Hi

    I put a similar issue to HMRC when I completed AAT and started CIMA. I was (at the time) paying my own CIMA fees (study etc), HMRC told me that I wouldn't be able to claim these as they were considered gaining additional skills.

    Neil
  • PGMPGM Font Of All Knowledge Registered Posts: 1,954
    NeilH wrote: »
    HMRC told me that I wouldn't be able to claim these as they were considered gaining additional skills.

    Neil

    I don't find the HMRC too reliable.

    So, if the training has to be inline with your job role, can you simply give someone a new job title? This seems an easy way around the problem.
  • clegganatorclegganator Well-Known Registered Posts: 184
    If you are in employment and your contract says you must do the training then it is allowable as you can't fulfill your contractual obligations without incuring the expense...

    But for self employment you may struggle to get it through without a fight, if at all. But its up to you at the end of the day and if you have interpreted the law like that and feel you can argue the case well then try. Just be aware of the consequences!
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071

    But for self employment you may struggle to get it through without a fight, if at all. But its up to you at the end of the day and if you have interpreted the law like that and feel you can argue the case well then try. Just be aware of the consequences!

    Yes, this.

    If he is already an electrician in all but name, and is just getting a piece of paper, then he stands more of a chance of claiming it and arguing it. However, if he is learning substantial new skills, then it's not allowable for tax.

    HMRC discuss it here
    http://www.hmrc.gov.uk/manuals/bimmanual/BIM35660.htm
    http://www.hmrc.gov.uk/manuals/bimmanual/BIM42526.htm

    In particular, this is relevant
    HMRC wrote:
    In considering the question of purpose, you should not take an unduly narrow view of whether the content of any particular course only up-dates existing skills of the individual. But if it is clear that, for example, a completely new specialisation or qualification will be acquired as a result of the expenditure, it is unlikely that the expenditure will be wholly and exclusively for the purposes of the existing trade
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    I wouldn't be capitalising training costs at all - the authority you would need to look to is IAS 38 at paragraph 69 which specifically says that training costs are to be immediately expensed as and when incurred.

    Kind regards

    Steve

    Thanks Steve.
    I should know this, but is the IAS just for companies?

    The links I just posted to the manuals indicate HMRC consider some training to be intangible assets. I know, HMRC are sometimes wrong.... :lol:
  • Steve CollingsSteve Collings Experienced Mentor Registered Posts: 997
    Monsoon wrote: »
    I should know this, but is the IAS just for companies?

    QUOTE]

    I think HMRC require any taxpayer, whether it's a corporate body or otherwise to apply GAAP so IFRS/IAS would equally apply to sole traders/partnerships (even though INT standards are rarely, if ever, used in the UK by those who don't have to apply them). In general though any set of financial statements which are used as a basis for computing tax liabilities must coincide with GAAP (IFRS/UK GAAP).

    Cheers

    Steve
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    Thanks Steve :)
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