BIM35660 - Capital/revenue divide: intangible assets: proprietor's training courses

Expenditure incurred by the owner of a business on training courses for themselves is revenue expenditure if the course or learning either

  • updates existing expertise or knowledge or
  • provides new expertise or knowledge

in the individual's existing business area.

Costs incurred on training to acquire new skills or knowledge to keep pace with advancements in technology and changes in industry practices, related to the owner’s existing business area, will usually be allowable.

Additionally, expenditure on courses which are ancillary to the owner’s main trade, such as introductory bookkeeping or digital skills courses may also be revenue expenditure depending on the specific circumstances of each case.

Expenditure incurred on training that is unrelated to the business owner’s existing business area (for example, expenditure that allows them to start a new business or expand into a new, unrelated area of business) is unlikely to be an allowable deduction.

In Dass v Special Commissioner and others [2006] EWHC2491 (Ch), the taxpayer traded as a tutor in English and as an advisor in relation to the bringing of appeals before various tribunals. He took a course which would have led to a diploma in law (LL Dip) qualification and claimed a deduction for re-sit examination fees (having missed the original examinations due to illness). The Special Commissioner described the nature of the course:

'HMRC described the Holborn course as a “bridging course” towards becoming a solicitor […]. Whilst Mr Dass's pre-existing activities in part involved work in preparing people for hearings before tribunals, it appears to have been predominantly related to English, translation and education. The LL Dip course was clearly going to enable Mr Dass “to advocate (’clients””) causes in respective tribunals and Exam Boards, and equally clearly it was going to increase Mr Dass's legal knowledge and capabilities.'

The Special Commissioner went on to decide that the fees were capital in nature:

'I agree with HMRC that the particular course was one to equip Mr Dass with a new qualification that would have enabled him to venture into new areas of practice, [...].'

In the High Court Lightman J upheld the Special Commissioner’s decision on the capital/revenue distinction:

'The line between the two may often be difficult to draw, but in this case the Commissioner was fully entitled on the material before him to draw the line where he did. Indeed I think that, far from his decision being open to challenge, it was clearly correct.'

As the taxpayer had incurred costs in an area of practice (law) that was unrelated to their existing business (of being an English tutor), the costs relating to the training were held to be capital and disallowed.

See BIM42526 for guidance on applying the business purpose (wholly and exclusively) test to expenditure on training costs.

The examples below illustrate the types of scenarios where the cost of training is likely to be an allowable business expense, and scenarios where the cost is likely to be disallowed. Whether an expense is allowable will depend on the individual facts and circumstances of each case, including the purpose of the owner in incurring the costs. See the wholly and exclusively guidance on purpose in BIM37050 and onwards.

The first list of examples below includes the types of scenarios where the cost of training is likely to be an allowable business expense for a self-employed individual. The second list of examples includes scenarios where the cost of training is unlikely to be an allowable expense.

Expense likley to be allowable

Example 1

Kiran works part time as a wedding photographer. She wants to improve her photo editing skills, so she attends an online refresher course on using photo editing software.

As Kiran is updating her existing editing skills which are related to her business, the cost of the course is likely to be an allowable expense.

Example 2

Ryan is a plumber and runs his own business. He signs up to a beginners’ bookkeeping course at his local college. Although the course will not help Ryan with the skills he needs as a plumber, it will teach him how to keep accurate accounting records, which will help him to run his business better.

The course will improve Ryan’s record-keeping knowledge and he will learn skills which he needs for the purpose of running his business. The cost of the course is likely to be an allowable expense.

Example 3

Tim spends his weekends selling his handmade pottery at a stall in his local town centre and now wants to sell his pottery online. He thinks this will help him to reach more customers, which will increase his sales. He decides to complete an e-commerce course and then goes on to complete a short, introductory course on website development.

Although the courses are not directly related to pottery, they will teach Tim new, skills so that he can move his business into online selling. The skills and knowledge Tim acquires will help him to keep up to date with the modern ways of selling. The costs of the course are likely to be an allowable expense.

Example 4

Alex is a website designer and is completing a short course on using artificial intelligence (AI) technology so that she can add additional tools and functionality to the websites that she designs.

The course will give Alex new expertise in an upcoming area of technology related to her business. The costs are therefore likely to be an allowable expense.

Example 5

Aditya fits gas boilers. He completes training to install heat pump systems because he thinks he will need these skills to future-proof his business as heat pumps are new and upcoming technology and an alternative to gas boilers.

The cost of the training is likely to be allowed as an expense of his business as heat pumps will replace gas boilers and Aditya is acquiring skills to keep up to date with modern technology.

Example 6

Felicity is a personal trainer. She attends a course to improve her understanding of nutrition and gains a basic qualification in nutrition.

Felicity wants to learn about good nutrition as her clients expect her to have a basic understanding of nutrition. The knowledge that she gains will also help her to develop better training plans for her existing clients so the cost of the course will be an allowable expense.

Example 7

Aisha runs an online store selling children’s storybooks that she writes herself. She wants to start drawing the illustrations for the books herself because she thinks this will improve her books and save her the cost of paying for an illustrator to create the drawings for her. Aisha therefore attends a beginners’ course on drawing illustrations.

The cost of the course is likely to be an allowable expense because Aisha is using her skills to improve the children’s storybooks that she creates.

Expense likely to be disallowable

Example 8

Amari is currently unemployed but wants to become a driving instructor and start his own business. He completes a course so that he can become an approved driving instructor and wants to claim the cost of the course as an expense.

Amari cannot claim the cost incurred on the course because the course provides new skills which will help Amari to start a new business that does not already exist.

Example 9 

Robert runs a sportswear shop, selling branded clothing. He enrols on to a sports science degree at his local university because he has an interest in the field and thinks it will help him to understand his customers better.

The costs associated with the degree course will not be an allowable expense because the knowledge Robert acquires will not specifically help him to sell sportswear. The costs are therefore unrelated to his business.

Example 10

Simone is a freelance makeup artist and wants to move into the tattooing business and open her own tattoo studio. She undertakes several tattooing courses and wants to claim the costs as an expense.

The costs of the tattooing courses were not incurred for the purpose of Simone’s existing business and are unrelated to her makeup artist business, so they are not allowed as an expense.

Example 11

Craig is a taxi driver, but he wants to change his business and move into the painting and decorating industry. He completes a painting and decorating course at his local college and wants to claim the costs of the course.

The cost of the course was not incurred for the purpose of Craig’s existing taxi driving business and is related to the painting and decorating business he plans to set up, so it is not allowed as an expense.