HMRC have published a new consultation, ‘Taxation of self-funded work-related training: Consultation on the extension of tax relief for training by employees and the self-employed’.
Current rules
- Where employers pay direct, or by reimbursement, for employees’ Work-related training, it is tax deductible, and is not taxable for the employees. Work-related training is a very broad definition.
- This treatment is extended for retraining for a new employment paid for by the employer.
- Contrarily, where an employee is not reimbursed for training that is not wholly, exclusively and necessarily, or that he is obliged to incur, for the employment, no tax deduction is available to the employee.
- Self-employed individuals can have a tax deduction for Training wholly and exclusively incurred for the purposes of the business, and which is not capital expenditure. Where the training brings new skills into existence, it will normally be considered capital expenditure.
Consultation
- 860,000 employees self-funded work related training in 2016; 500,000 self-employed self-funded training.
- HMRC want to extend the tax relief to support genuine good quality training for those wanting to upskill or retrain,
- High-level objectives:
- Tax changes will focus on supporting individuals needing to upskill, retrain or where training with an approved provider which leads to a qualification.
- Learn lessons from previous attempts to ensure relief is not available for recreational activities or other personal training:
- Previous attempts to provide relief for training resulted in more than a quarter of the relief claimed relating to flying and diving.
- Must be sustainable and affordable for public finance.
- HMRC are open to the idea of tax relief, tax credits or both and have suggested the following options:
- Retraining costs for new employments or trades would be carried forwards and could be set against the new income, where earned within a certain timeframe.
- Upskilling for self-employed would be changed, such that it is not capital expenditure, or that relief is given for that capital expenditure.
- Upskilling for employed would be reviewed to ensure genuine training costs get some form of relief for employees when the cost is not reimbursed.
The consultation follows on from HMRC’s Response to its earlier Call for evidence on the ‘Taxation of employee expenses’. The consultation runs until 8 June 18. The full consultation can be found here.
Links
Training and course fees (self-employed)
Consultation questions
- Do you agree with the lessons that need to be learned from the UK and overseas?
- Do you agree with the high-level objectives? Are there any others you think are as or more important?
- Do you agree with the high-level design principles? Are there any others you think are as or more important?
- How could the rules be reformed to allow a tax deduction for self-funded retraining subsequently used in a new employment or self-employment? Do you think a time-limited carry forward would be the best approach and how could this work in practice?
- How could the rules be reformed to allow a tax deduction when the self-employed fund training on upskilling for their existing business?
- How could the rules be reformed to allow a tax deduction when an employee funds training on upskilling for their current employment?
- To what extent would reforms to tax relief change behaviour so individuals are incentivised to undertake more work-related training? Please explain.
- Do you think the tax system would be the most effective lever to support employees and the self-employed who want or need to upskill, retrain, and take part in career learning? Please explain.
- How could the government target work-related training leading to valued qualifications through approved providers and professional organisations?
- How can the scope for misuse be minimised, particularly claims related to recreational activities, and the rules be made enforceable in practice without being resource-intensive for individuals or HMRC?
- If it is necessary, at what level would any cap on expenditure eligible for tax relief need to be set to make a meaningful difference to the choices made by individuals? Please explain.
- Are there complementary or alternative approaches that could ensure any extension is affordable but would still meets its objectives?
- How could any changes be administered so that take-up is maximised, errors are minimised, and the system is not resource-intensive for either individuals or HMRC? Is the existing system involving submitting a paper or online form via the Personal Tax Account and self-assessment appropriate?
- Are there any issues with the current rules or administration of the existing tax relief for work-related training by employees and the self-employed that need to be resolved?
