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Training and tax: what is deductible?

As an entrepreneur, the opportunities for learning are seemingly endless. But you might also seek education in the form of professional courses, online training, or workshops.

If you’re looking to brush up on some business skills or learn something new, or if you’ve already completed that online course, you may be surprised to see the price tag on some of the more professional options.

As a self-employed individual, your investment in your own knowledge and skills is arguably money that you are investing in the growth of your business.

So whether you’re considering signing up or looking over expenses at tax time, you might wonder it those training courses that are related to running your business are eligible to be tax deductible.

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Deductible training

In order to determine whether training courses qualify as revenue expenditure that can be deducted from the profits of the business, the HMRC outlines a fairly basic method of evaluation.

This is known as the ‘business purpose test’. Essentially, it means that if the course you are taking helps you to update former skills or stay abreast of the latest trends in your industry, then the training can be deducted.

If the training provides a set of completely new skills, regulation states that, due to the fact that you have already started a business in a particular industry with your background, it is unlikely that these skills will be relevant to your business and are therefore not eligible.

However, the ‘capital test’, provides that if training for new skills can clearly be shown to provide an ‘identifiable asset’ for the business, then it can be considered capital.

For example: Online Marketing courses

If you studied marketing in school and use it regularly in your online shop but are looking to get up-to-date on the latest developments in the marketing world, you may choose to enroll in a training course.

In this situation, the course would be tax deductible because it is updating existing skills that are necessary for running your business.

The course would not be deductible if:

  • You have no experience with marketing, making it a new skill that you wish to learn.
  • Your business does not have an online presence, making it unlikely that an online marketing course could be considered an asset at this particular time.

Self-employed vs. company training

If you’re self-employed, the line can potentially seem a bit blurry concerning whether a course is updating existing skills or knowledge or whether it is a new skill that can be considered sufficiently important to your business to qualify.

With larger businesses, this process is relatively more straightforward. ‘Work-related training’ covers a much more varied array of qualifying education: essentially, as long as it serves to improve the employee’s ability to do their job.