As self employed bookkeeper, can you put through pre-start up training as expense? Or Capitalise?

AliceElandAliceEland Registered Posts: 6
Hello all

I do hope you can help as I have been trawling the internet for hours and spoken to various professionals and I am still unsure on this.

I want to know, as I am setting up a bookkeeping business as a Sole Trader, can I put through my first two years of AAT courses as an expense for the business? Some people have said I can, but others have said it should be Capitalised as an Intangible Asset (but not depreciated).

Can anyone clarify this for me? I am unsure as when I started the course I did not have the business, but I did the courses in the first place to set up the business. My gut reaction is that they are an expense, but I have definitely read somewhere (but now can't find) that if the training is a NEW skill this is not admissible. So I am edging towards the courses being Capital Expenditure for an Intangible asset.

Now, HMRC says in their BIM35660 Manual "Where attendance at a course is intended to give business proprietors new expertise, knowledge or skills, which they lack, it brings into existence an advantage that is of enduring benefit to the business. We take the view that the expenditure is therefore of a capital nature, and deduction is prohibited by [S33 Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005)]."

This is quite clear that AAT Level 2 and 3 would be considered Capital Expenditure, as without them I would not have been able to start the business. I could then take drawings against this Capital balance when the business starts making profit.

I understand that any subsequent courses however would be revenue expenditure.

Any advise or thoughts would be greatly GREATLY appreciated. I am most certainly going round in circles!

Many thanks in advance.

Alice





LisaJe

Comments

  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,452
    I agree that you can not put this as an expense of the business. It is capital in nature. Even if you were in business and carried on a further qualification you wouldn't be able to claim it as a training expense as a sole trader.
    CSan89
  • AliceElandAliceEland Registered Posts: 6
    HI MarieNoelle

    Thank you for clearing that up for me. I will set up an Intangible Asset account on my Balance sheet for this.

    With regards to further training, (forgive me for being so literal) Do you mean I wouldn't be able to claim future courses as expenditure because it is not allowed?

    Or do you mean that it I wouldn't be able to claim it because the course is not relevant? I.e. I am already a bookkeeper and do not need further training for this.

    I haven't seen anything to suggest that sole traders cannot claim training that is wholly relevant to the business as an expense.

    Alice
  • fournaanjezfournaanjez Registered Posts: 32
    Training to keep your current skills updated is allowable, training to gain new skills/expertise is not allowable.
    MarieNoelle
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,452
    As @fournaanjez mentioned, you could claim the cost of CPD as this allows you to keep your skills up to date; however if you were studying for a chartered qualification for example you wouldn't be able to claim these costs.
  • AliceElandAliceEland Registered Posts: 6
    edited October 2018
    Hi all

    Thank you. I have found the article again:

    https://gov.uk/hmrc-internal-manuals/business-income-manual/bim35660

    I am actually starting to think that maybe Level 4 won't be admissible as an expense as it is not required to become a bookkeeper? It is providing new skills I currently lack (rather than refreshing/updating), but will benefit the business so is Capital Expenditure. What do you think?

    Many thanks for looking into this for me. I realise I am quite a literal person and I don't want to misinterpret the information!

    Alice
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,452
    Yes, the last paragraph of the link you have shared is quite clear in my opinion.
  • LisaJeLisaJe Registered Posts: 8
    Thank you very much Alice for your post.

    It was very useful for me as I was looking for the same information. It is clear now that any training giving new skills (like AAT qualification) is not revenue expences. However, as Alice was mentioned, a new training wich will benefit the business can be capitalised as an Intangible Asset. And the drawings can be taken against this Capital balance when the business starts making profit.

    It is clear for me how to do it for Ltd's. But if I am Self-Employed and using Cash Basis accounting. I didn't find any information about I can Capitalise intangible assets in my situation.

    I also am in doubts that the education (like AAT qualification) can be capitalised. Because this kind of Asset (education) can not be sold to someone else. If the business will be sold, our knowledge and diploma will not belong to a new business owner.


    I would be very appreciate for any advise or ideas.

    Many thanks in advance.

    Lisa




  • douglasstrouddouglasstroud Registered Posts: 129

    I agree that it is a Capital expense and not Revenue

    Alice wrote
    "I could then take drawings against this Capital balance when the business starts making profit"

    My opinion on this is that for a sole trader no tax relief is available and that even though it is classed as capital in nature does not mean it will qualify for CAs, CAs are only for certain types of capital expenditure which does not include training costs.

    Just my opinion, be interesting to hear others

    LisaJe
  • AliceElandAliceEland Registered Posts: 6
    edited March 13
    Hi everyone.

    In the end I have not recorded my previous qualifications through my books, but I have recorded my Professional Diploma in Accounting course fee as an expense to Education and Training. I've created a "Reimbursement - Alice" account as the Credit, which is actually set up as a Credit Card on my chosen accounting software so it shows as a liability (because the business owes me money). If I purchase anything else out of my personal money for the business, it can be recorded there and paid off/back.

    I am looking at changing software shortly and will likely review this again, and look at changing this transaction to an Intangible asset / Capital transaction as I've just reread everything and it seems this would be correct, rather than putting the new course through as an expense.

    Hope this helps or at least makes sense!

    Alice

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