It’s never been more important for both you and your employees to be up to date with your sector’s most recent developments. The work-related training tax exemption is an interesting tool available to help companies with this. It allows employees to broaden their knowledge and skills through training offered by the company that is partially funded through tax breaks.
What is work-related training tax exemption?
Work-related training tax exemption allows companies to offer their employees training programmes while recouping part of the cost through tax breaks. This allows the employees to broaden their knowledge and skills. Taxes are reduced where an employer, or a third party, incurs expenses on work-related training for employees. It does not matter whether the employer directly incurs the expenses or reimburses the employee's expenses. The exemption covers sums that would otherwise be taxable as earnings, as benefits, or under the voucher rules.
Additionally, the following apply to work-related training tax exemption:
- It covers fees and other costs related to education and training, including materials, travel and accommodation.
- It can be applied to both internal and external courses.
- There is no territorial limitation on the training location.
- A payment or reimbursement of training costs is not exempt if its purpose is to reward the employee.
What are the objectives of work-related training?
Work-related training programmes have the following objectives:
- To improve employees’ professional skills through training in areas of interest to the company.
- To make the company more competitive and productive.
- For employees to appreciate the effort made by their employer to provide them with training resulting in a greater commitment to the company.
- For employees to feel valued, resulting in improved motivation and satisfaction.
What are the main differences between work-related tax exemption and training grants?
It’s important to note that work-related training tax exemption is not the same thing as training grants. Adult learners can apply for grants, also referred to as bursaries, to pay for courses and training. Usually, this money is paid directly to the beneficiary and does not need to be paid back. Grants are available through a wide range of schemes, both government- and charity-funded, and the assistance available and requirements will depend on the specific scheme.
Training paid for through work-related training tax exemption, on the other hand, is not directly funded, but instead partially reimbursed through reductions in the amount of tax paid by the company providing the training. In this case, it’s the company that chooses the training courses based on the needs of its employees, hires the training staff, pays for all this, and is then partially reimbursed in the form of tax exemption.
These grants are only available for people in education and training - end not employed.
What are the requirements for work-related training tax exemption?
Although any company can provide training for its employees and be reimbursed for this through tax reductions, the law establishes a series of requirements that must be met. The requirements for providing work-related training are the following:
- It must be, is, or is likely to prove useful to the employee when performing their duties.
- It must qualify or better qualify the employee to carry out their job, or to participate in charitable or voluntary activities arising through the employment.
- It must relate to the employee’s current job or a “related employment”.
There is no restriction on the way the training can be delivered. Self-tuition packages, computer-based training, distance learning, work experience or work placement and informal teach-ins are all acceptable as are more formal classroom-based methods. It does not matter whether training is delivered internally or externally, or on a part-time or full-time basis.
Which organisation is responsible for managing work-related training tax exemption?
Work-related training tax exemption is organised and monitored by Her Majesty’s Revenue and Customs (HMRC), a non-ministerial department of the UK Government responsible for the collection of taxes, among other tasks.
How much of your training costs can be exempted?
There is no limit on the amount spent on training that can be exempted from tax. The intention of this instrument is that no tax obligations result from companies’ provision of work-related training to their employees. In any case, the training must meet the requirements set out by HMRC and listed above.
How to apply work-related tax exemption
In order to claim tax exemptions, companies need to report them with their usual tax returns and the HRMC deducts as appropriate (if they agree to the exemption).