Contractors' Questions: Can I expense a training course and reclaim its VAT?

Contractor’s Question: If I'm on the Flat Rate VAT scheme and I register for an IT training course related to my business, can I expense the course on my company and claim the VAT back as well? The course is pricey, more than €2,000. Please advise.

Expert’s Answer: There are actually three separate components to your question:

• Whether the value of the investment by the company is treated as a revenue or a capital expense;
• Whether a training course directly relates to work and, if so, can this be an allowable deduction against taxable profits of the company of which, I am an employee/director; and
• Whether the input VAT incurred on the cost of the course can be recovered on the flat rate scheme.

If expenditure is regarded as capital then it cannot be deducted from taxable profits before corporation tax is calculated, but it may be eligible for relief as a capital allowance if it meets certain criteria. If you are using the flat rate VAT scheme, it is possible to reclaim the VAT you have been charged on a single purchase of capital expenditure where the amount of the purchase, including VAT, is £2,000 or more.

If the expense is classed as revenue expenditure, then you would be able to deduct the expenses from the taxable profits, providing it was incurred for the purposes of the trade.  You wouldn’t however be able to reclaim the VAT as the expense would not be of a capital nature.

Importantly, guidance from HMRC suggests that they would not regard the cost of training staff to be a capital expenditure.

One often overlooked consideration is whether training provided by the employer is directly work-related. If it can be shown to be related, then the employee/director will not pay a benefit in kind charge by virtue of Section 250 ITEPA 2003. Work-related training is defined in this part of the Taxes Act which provides specific exemption for this type of expense paid for or on behalf of the employee/director.

In conclusion, certain training costs are an allowable expense for corporation tax relief as long as it directly relates to the services that your company currently provides. However a training course normally would not be classed as capital expenditure for flat rate VAT purposes so VAT would not be claimable.

As you can see, training costs are a complex area so it is worth seeking advice based on all of your individual circumstances.

The expert was Andrew Cleal, a director at PayStream, an accountancy firm and umbrella company serving contractors.

Editor's Note: Related Reading -

IT contractor guide to training expenses

Contractors' Questions: Can my 'Ltd' pay the course fee?

Charging expenses back to your client