View Full Version : Training and IR35

16th March 2004, 17:56
Apologies if this has been done to death already.

I'm contracting thru an umbrella company and I've booked a training course ( i understand that I should just have bought the book and blagged it, but there you have it ).

I'm entitled to 5% of turnover for expenses and this training course is a legitimate expense. Is it up to my umbrella company to plug this into their spreadsheet and out pops a larger than expected monthly payment, or do i have to claim it back on my tax return?



17th March 2004, 01:17
You're getting confused, dear boy.

If you're with an umbrella you're an employee. IR35 does not apply, nor does the 5% thing - if you don't have a business, why do you think you should have an allowance for running one?

That said, training cost is specifically excluded from the 5%. That's one of the reasons why people say that IR35 is blatantly unfair..

Martin Underwood
17th March 2004, 10:39

I'm afraid you're getting afraid, my dear melancholy one.
Training costs are neither included nor excluded from the 5%. In fact, no expenses are included or exluded from the 5%. The 5% allowance is a fixed allowance, given regardless of what other expenses you claim under Schedule E.

17th March 2004, 11:17

you need to get the umbrella company to pay for it. That way it is a non taxable benefit. If you don't do it this way you can't claim it against your tax, it is not an allowable expense.


17th March 2004, 11:24

Quite right. Mea culpa. It's been a long an frustrating week and the old (who said "very old"?) mental faculties are feeling the strain...8o

However, the underlying point about business vs umbrella stands, IMHO

18th March 2004, 02:00
Appreciate the point about the umbrella co paying it, but good luck with that.

My understanding is that you would have to pay it from your NET funds, and submit it as a receipt, to get back before being taxed the following month.

These number's are not right, but it goes summik like this.

Gross Pay £5000
Expenses £0
Employers NI 523.57
Employees NI 260.17
Employees Tax 1,160.60
Total all Tax 1,944.35
Umbrella Fees 55.00
Total Net Income 3,000.65

From the £3000.65 you pay £1500 for a course.....

You submit your claim....
Gross £5000
Expenses £1500
Employers NI 353.36
Employees NI 246.88
Employees Tax 628.69
Total all Tax 1,228.93
Umbrella Fees 55.00
Total Net Income 3,716.07

So you get 715.42 more than usual.

I used www.contractorumbrella.co...ator.html. (http://www.contractorumbrella.com/calculator.html.)

That is my understanding of it.....

The worst bit advised to me by 2 different umbrella's is that they won't cover expenses such as courses!

Their comments were along the lines of;

You can only claim for expenses incurred in the process of carrying out that specific contract. You therefore can't claim for training for a future contract, and you already have the contract so you can't need the training. You can't retrospectively claim for past training, because they would not be specifically related to the next contract.

How true these comments are is questionable, but that is what I was told...

18th March 2004, 10:15
On a similair sort of theme.

I'm about to undertake a pretty serious industry certification, which I figure will cost me somewhere in the region of 10-15K in books, equipment and actual exam costs - would this fall outside the 5% or do I pay the bulk of it myself? (Assuming I'm IR35 which I'm not sure I am).

Martin Underwood
18th March 2004, 10:18

The major problem with umbrella companies with regard to training courses is how they can justify the provisions of the work-related-training provisions laid out in ICTA 1988 (I forget the relevant sections - look at the Inland Revenue website).

A company can provide paid-for training for its employees without incurring a benefit-in-kind so long as either (I'm simplifying here. ICTA will give you the full rules):
1. the training course relates directly to work being undertaken by the employee (ie. it is a necessity of the current job), or
2. the training course benefits the company more than the employee (ie. by virtue of the company employing highly-trained people).
For the latter reason, it is usually easier for your own Ltd company to claim training course expenses than for a contractor working through a brolly.

18th March 2004, 18:32
Mr Underwood is quite correct - my brolly will not allow training nor equipment to be funded through expenses for the reasons described. They (the brolly) believe the IR would be inclined to rule against this type of expense claim.

18th March 2004, 22:05

I've coughed up £6000+ on various courses and certification this year, my company considers it's people to be it's most important asset.

It's only asset, thinking about it...

19th March 2004, 09:20
So in a LTD company scenario what is claimable for training when IR35/Non IR35?

19th March 2004, 09:21
Outside IR35, it's a business expense offset against profits and so reduces your CT bill, and you can obviously recover the VAT.

Inside IR35, it's a business expense offset against profits and so reduces your CT bill, and you can obviously recover the VAT.

No, that can't be right... :\

edit* No, of course it can't. Don';t be a prat, Malvolio. Outside IR35 the above is correct. Inside IR35, you can try and claim it (but from whom??) but in practice you will have bought the training out of your own income. Just like all those people with permanent jobs do... *edit

19th March 2004, 13:45
Not convinced it is not deductible under IR35 provided it is specifically to further your ability to perform your current contract or to obtain further work with the same company. If I were in that situation I think I would claim it and argue the toss with the IR. Look at the guidance and legislation and make up your own mind.