Tax relief for training costs – medical sector

HMRC has updated guidance on the tax relief available for training costs incurred by the self-employed.

HMRC say that tax relief may be claimed for training costs incurred to keep pace with advances in technology and practice in the person’s trade (or profession). So, the self-employed may deduct training costs in calculating their trading profit or loss where the following two conditions are met:

1. The expenditure is incurred wholly and exclusively for the purposes of the person’s trade, and
2. The expenditure is not capital expenditure (i.e. it is revenue expenditure)

The second test can be difficult to apply in practice.

HMRC states that training costs are revenue expenditure where the intention is to update current, or provide new, skills or knowledge in the person’s existing trade.

Depending on the circumstances, it may include training additional to the person’s trade (e.g. a course on bookkeeping).

However, a deduction may not be claimed for training that allows the person to start a new business or expand into a new, unrelated area of business. HMRC believes that this is capital expenditure.

So, how does this impact the medical profession?

Well, self-employed individuals should have no problems in claiming the costs of update courses to maintain their existing knowledge and skills. There should also be no issues with the costs of acquiring a new skill relevant to the existing business. For example, if a self-employed GP decides to acquire a special interest in, say, dermatology, the training costs for this are likely to be fine. On the other hand, a course in cosmetic procedures, will be harder to justify. HMRC would probably deem this to be outside a GP’s normal services and so it would be a capital expense (i.e. not an allowable deduction).

What about employed workers in the medical profession?

Unfortunately, most training costs as an employee will not be allowable, though it’s not quite a case of “I can’t get no relief” (with all due apologies to Bob Dylan).

In HMRC terminology, employees can only claim a training cost if they are “obliged to incur and pay it as a holder of that employment” and the cost is “wholly, exclusively and necessarily incurred in the performance of the duties of the employment.” It is the ‘obliged’ and ‘necessarily’ bits which are the biggest hurdles. It is not enough simply to be able to say that some training is desirable or recommended; it must be mandatory in relation to the retention of the current job.

Can you get around this?

The easiest way to sidestep the above restrictions is to get the employer to meet the cost. They will get a tax deduction if the expense is relevant to the business – no obliged or necessary hurdles for them to jump. You can even, on the commencement of the employment, accept a lower salary on the understanding that the employer will meet certain training costs. However, you can no longer use a formal salary sacrifice arrangement where the employer meets a specific cost and deducts that from the employee’s normal gross pay.

The training costs that are most likely to escape the above restrictions are those incurred by employees under formal training contracts. Under these contracts, it will generally be a requirement that certain training/exams are undertaken to continue in that employment. A list of medical bodies for whom training costs will be accepted by HMRC in these circumstances can be found under this link:

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32540

As HMRC say at the foot of this link “this list is not exhaustive and may not cover all of the courses that might qualify for tax relief. If a course is not on the list, it may still be eligible for tax relief depending on if the amounts incurred meet the strict conditions stipulated in section 336 ITEPA 2003. The contract of employment must be a training contract, and it must meet the requirements outlined in EIM32535”.

When is the deadline for making expenses claims?

Claims for expenses can be made up to four years after the end of the relevant tax year, so for expenses incurred in 2023/24, you will have until 5 April 2028, for 2022/23 until 5 April 2027 and so on.

If the expenses being claimed are less than £2,500 per year, you will be able to make the claim via a reasonably simple form (P87) accessed via this link:

https://www.gov.uk/guidance/send-an-income-tax-relief-claim-for-job-expenses-by-post-or-phone#how-to-complete-the-form

If you want to claim more than £2,500 in relation to a tax year, the time limits are the same, but HMRC will oblige you to register for self-assessment and claim the expenses on a tax return form (SA100).

If you would like to discuss any of the above, please do contact your usual PKF Francis Clark adviser, or you can contact me, Phil O’Connell, at [email protected].