Tax relief for training course costs? (IR35)

noisla

I am a contractor (i.e. legally self-employed - my contract says I'm self-employed) and I have opted to be taxed under PAYE (i.e. as an employee for tax purposes), because I feel I would fail IR35 and thus ought (legally/morally) to be taxed as an employee.

Am I right in concluding that I am not allowed to get a deduction for (wholly & exclusively) work-related expenses incurred by me - in particular, a training course, exam fees, and associated materials? It seems very few deductions are allowed for employees who incur expenses (the only relevant one I can think of being trade subscriptions).

I've been reading:
http://www.hmrc.gov.uk/manuals/eimanual/EIM01210.htm
http://www.hmrc.gov.uk/manuals/eimanual/EIM32525.htm
http://www.hmrc.gov.uk/manuals/bimmanual/BIM42526.htm

Are there any other provisions/arguments I could use to get this deduction from my taxable income?

* * * * *

If my conclusion is correct, then this implies that you really are scr3wed if you fall into IR35! :mad: Training courses would be a non-taxable benefit for an employee (and the employer would presumably reclaim the VAT too). Training courses would equally be a deductible expense if I were self-employed of had set up my own limited company (and again I could potentially reclaim the VAT). As an IR35 employee, you fall between the two and get no relief. I get none of the benefits of being an employee (no sick pay, pension contributions, training, appraisals, indexed pay rises, notice period) yet I pay MORE tax than an employee (and no, I don't get paid more). I am seriously wondering if I have "mis-assessed" my IR35 position...

WHA

Before we go any further, can you clarify your position. Have you set up a limited company through which to do your contracting. Your post is ambiguous whether or not you've done this. If not, have you registered as self employed, or are you contracting via an umbrella? Once that is confirmed, we can answer your query.

noisla

I suppose it's an umbrella company, but they are just a widely known high street recruitment company in the UK, not one of these off-shore umbrella companies.

I turn up day-to-day to work at Company A, they pay Company B (recruitment co), Company B keeps a cut and pays me under PAYE. My contract (which says I am self-employed) is with Company B. I've been told I'm an "agency worker" by some mortgage advisers (and all sorts of other things by other mortgage advisors) :-)

Does that make sense?

WHA

Thanks for the clarification. IR35 doesn't apply as you're an employee of the umbrella company (though the effect is the same as PAYE applies by virtue of employment). For tax purposes, you're an employee.

You can ignore the BIM manual reference as that's just for self employed - i.e. sole traders and partners, not employees.

Unless your employment contract between yourself and the umbrella company requires you to undergo the training as a fundamental part of your employment, then, no you can't claim tax relief on any of the costs. I'd say that your chances of this applying would be close to zero under an umbrella.

Had you been contracting under your own limited company, whether or not you applied IR35, then your own company "may" have been able to pay for your training, thus giving you the valuable tax relief, depending upon the exact specifics of what type of training it was and how relevant it was to the company's trade. I've certainly had the occasional success claiming for personal training, exams and certification etc., where I've managed to persuade the tax inspector that the company has benefited, not just the director/shareholder. It can be done when the circumstances are right.

A lot will depend on what qualifications/expertise you already hold compared with the proposed training/qualifications, the reasons for the training, the effects of the training (both personally and business-wise), etc. For example (very similar to a success I had for a client), if you're a qualified accountant and decide to take the courses/exams for a specialist tax qualification, then it could well be allowable as a cost of your limited company on the grounds that it's not really a new qualification - the rationale is to improve your existing knowledge to improve your company profits - having the extra letters after your name doesn't really add to you personally as you were already a qualified accountant. The same argument worked recently when I secured training and exams to be allowable for an independent financial adviser client - he'd been trading for years, but new rules meant he needed qualifications to continue to do what he'd been doing for years without them - again, tax inspector had to agree that the rationale was business driven and that any personal benefit was irrelevant. By contrast, however, if someone was a teacher and started a limited company and then got the company to pay for financial adviser or accountancy qualifications, so that the company could trade in those professions, then it wouldn't be allowable as it was a completely new qualification. Clearly there is a lot of grey area between these extreme examples!!

noisla

Aha thanks. Actually it is exactly that - as a CA training in (a particular area of) tax in which I held no previous qualifications (albeit I did have knowledge and experience... so I'll mull that one over). I've no experience of personal tax though, hence my bumbling now.

I think I've misunderstood IR35. I thought you had to find someone to employ/PAYE you, in order not to be a contractor caught by IR35. If I set up my own ltd company, I could apply IR35 to myself? I want to get it right based on my own moral compass and on the basis that a tax professional would have little excuse if caught out!

grey_gym_sock

you can set your own company, and make yourself an employee of that company. then IR35 can apply.

noisla

This is a much better idea. From poking about the HMRC website, it seems I can take a 5% discount for "unspecified expenses" before calculating by tax and NIC. Also, I can sign up for the flat rate VAT scheme to get a net gain on retained VAT. Quids in. I had always thought that being caught by IR35 was a bad thing.

Davide123

noisla wrote: »

This is a much better idea. From poking about the HMRC website, it seems I can take a 5% discount for "unspecified expenses" before calculating by tax and NIC. Also, I can sign up for the flat rate VAT scheme to get a net gain on retained VAT. Quids in. I had always thought that being caught by IR35 was a bad thing.

It is....for people who think they are outside the scope... And then the Revenue disagree!

WHA

Davide123 wrote: »

It is....for people who think they are outside the scope... And then the Revenue disagree!

It's still good if you accept you're caught by IR35. You're still going to be better off than if you went fully PAYE under an umbrella due to the 5% expenses allowance and the potentially large "profits" of the flat rate VAT scheme. Accountants fees for a ltd co are similar if not cheaper than umbrella company fees.

A decent contract review and the resulting bit of negotiation with the end client to change your working practices and you could make yourself outside IR35 anyway.

My usual advice is go umbrella if you're just going to "contract" for a few months, but if you think it's long term, then go limited.