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Replies to Queries - 1 - Training expenses

11 September 2002
Issue: 3874 / Categories:

My client was made redundant and decided to start a business as a driving instructor. I claimed for his training costs as he could not be an instructor without these, because the very strict regulations demand training. The Inspector of Taxes has disallowed these saying they are a capital expense and quoting Inland Revenue Tax Bulletin, November 1991.

My client was made redundant and decided to start a business as a driving instructor. I claimed for his training costs as he could not be an instructor without these, because the very strict regulations demand training. The Inspector of Taxes has disallowed these saying they are a capital expense and quoting Inland Revenue Tax Bulletin, November 1991.

The Inspector states that 'where attendance at a course is intended to give proprietors new skills, it brings into existence an intangible asset. The expenditure is therefore capital and cannot be allowed'. Nor will the Inspector accept that they are allowable as start up expenses saying that these are only allowable if 'it would have been allowable if it was incurred after the commencement of trading'. The Inspector insists that the expenditure is capital in nature as it enabled my client to acquire a new qualification rather than maintaining an existing one.

So, here is someone not being a burden on the state by retraining himself to become a small businessman, but being penalised for doing so. Could I add that he only earned £15,000 in his first year, most of which was eaten up by genuine expenses.

Do readers have any suggestions?

(Query T16,072) - Frustrated.


The usual thinking is that all skills learned and acquired will hopefully be remembered for the rest of one's life. Therefore it is easy to see why the argument on the lines of capital expenditure has a good footing.

There is a fair amount of legislation on training expenses for employees, but not a lot for the self employed, as it will usually be the employers who will pick up the tabs.

Quite a number of self-employed driving instructors are working on a franchisee basis; that is taking pupils via one of the large driving schools and paying effectively a percentage of the fees charged as a franchise for the privilege. That being so, Revenue Interpretation RI 116 Franchise payments - training expenditure advises '… Normally the costs of the initial training of the franchisee are disallowable …'. Then RI1 Expenditure on training costs for business proprietors continues, 'There is some uncertainty whether the cost of proprietors of a business attending a training course, directly related to the business activity, is deductible in arriving at the profits chargeable to tax under Schedule D, Case I or II.

'Where attendance at a course is intended to give business proprietors new expertise, knowledge or skills which they lack, it brings into existence an intangible asset which is of enduring benefit to the business. [The Revenue] takes the view that the expenditure is therefore of a capital nature, and deduction is prohibited by section 74(f), Taxes Act 1988.

'On the other hand, where attendance is merely to update expertise, etc. which proprietors already possess, the expenditure is normally regarded as revenue expenditure and will be deductible if it satisfies the "wholly and exclusively … for the purposes of the trade" test in section 74(a), Taxes Act 1988'.

The revenue or capital distinction is also covered in the Revenue's Inspector's Manual at paragraphs IM602 and 602a. Then in IM1165 the relevant point made regarding 'Expenditure on training' is that '… courses attended by the proprietor of a business with the purpose of updating his or her skills and professional expertise is normally revenue expenditure, which is deductible from profits of the business provided it is incurred wholly and exclusively for the purposes of the trade or profession carried on by the individual at the time the training is undertaken'.

Obviously the current thinking behind not allowing as a deduction the initial cost of learning the new skills in question is based on what used to be an acceptable approach to the matter. However, as suggested in 'Frustrated's' tone of comments, if someone has the idea to continue to occupy the time of his working life, by actually doing something rather than just idling around, then good luck to him and perhaps what needs to be done here is, if you want something done, either ask for it or do it yourself. As the latter option is not possible, then 'Frustrated' (or the client) needs to lobby his Member of Parliament, or perhaps make the necessary awareness of his thinking known nation-wide so that he can club together with other people in the same boat, thereby making their feelings and intentions heard, loudly. One could also ask one of the well-known driving schools to add their weight to the argument! - N.K.


A somewhat comparable situation was discussed in Readers' Forum replies to Query T15,930, 'Personal therapy' which appeared in Taxation, 20/27 December 2001 at pages 317 and 318. Frankly, little serious encouragement can be given to pursuing the claim for revenue costs.

However, sections 588 and 589, Taxes Act 1988 give relief to employers for expenditure on training courses for employees when employment terminates, without any Schedule E charge. The constraints as to the timetable for courses and qualifying employment are flexible. Accordingly, the client would have been best advised to have come to an arrangement with his employer which would have enabled the client to commence subsidised training on or before leaving (an intention to take up self employment is permitted).

The Inspector's observations suggest that the new reliefs for intellectual property might help (see 'Long Overdue Reform' by Paul England and Allan Cinnamon in Taxation, 25 April 2002 (at pages 95 to 98) and 2 May 2002 (at pages 120 to 123). The client's training should fit because it requires the acquisition of techniques not separately specified but having industrial, commercial or other economic value.

These observations are not directly applicable, as the client would have first to incorporate his business in order to benefit from clause 83 and Schedules 29 and 30 in the Finance Bill, effective from 1 April 2002. What is required is that the company's accounts should write off the property in accordance with accounting standards, with corresponding tax relief. - M.C.N.

Editorial note. Two of the six replies received suggested that relief should be available.

For a contrary viewpoint, an extract from 'Mike's' reply follows:

The Inspector should be asked to quote whether the Inland Revenue maintains that on completion of the training procedures there was anything of value in existence that was a saleable asset. The answer is No. This expenditure falls into the same category as the initial costs of (say) consulting an accountant in relation to a proposed trading venture, including preparation of budgets and cash flow forecasts, and other overhead expenses incurred prior to receipt of income.

The business accounts should write this expenditure off as revenue expenditure because it has no value. If it has no value, the expenses must be of a revenue, not capital, nature. If the business does, subsequently, acquire a value, it will be because of successful marketing and the capture of a growing clientele. However, the transfer of the business for money is a doubtful scenario with a one-man band, because the ongoing success of the business is generally dependent on the personal reputation and contacts of the proprietor.

Issue: 3874 / Categories:
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