Contractors’ Questions: Can my limited company pay for unrelated voluntary job training?
Contractor’s Question: As a contractor working for my limited company, I am about to apply for a volunteering position which is unrelated to the business.
The volunteering training is £250, and the training pack states that the training can be paid by myself, as an individual, or that a company can pay the fee on behalf of the individual. Would it be acceptable for my own limited company to pay the £250, as a charity donation/sponsor?
Expert’s Answer: Unfortunately -- because I sense you want your company to foot the bill for the voluntary position training, I foresee a number of problems. Five in fact.
Problem 1 – It isn’t a donation!
From the wording of the question, it seems this is simply a payment for some training.
A donation (which you suggest the payment could be) is normally an outright gift, which has no benefit received in return. But in your scenario, there is a benefit of the training in return for the payment.
Companies (and individuals) can still obtain tax relief on a donation --- also where there is a benefit received, provided it is within certain limits, set out below:
|Donation amount||Maximum value of benefit|
|Up to £100||25% of the donation|
|£101 - £1,000||£25|
|£1,001 and over||5% of the donation (up to a maximum of £2,500)|
The above amounts and corresponding values apply to benefits given to any person or company connected with your company, including close relatives. The values and amounts are extracted from HMRC’s guidance on tax when your limited company gives to charity, which can be viewed here.
In your situation, if everyone doing the training is required to pay £250 then, unfortunately, the value of the benefit is £250.
However, it still might qualify as a donation. In fact, in some instances, what appears to be a payment for training could actually be free training, albeit attendees can be encouraged to make a donation to cover the cost!
To us, the proper way to gauge the correct approach is that, if the company’s shareholder/director could genuinely have received the training without making the payment, then the payment towards the cost is indeed a donation.
Problem 2 – even if it is a donation, only charitable donations attract tax relief!
In your question, you do not detail whether it is a charity, only that it is volunteering training.
If it was a charity then great because a company can deduct charitable donations in calculating its taxable profits.
But if it’s not a charity that is receiving the donation – and I suspect from the wording of your question that is not a charity – then it is treated as a non-business expense and is not deducted in calculating the company’s taxable profits.
Problem 3 - it isn’t sponsorship!
A company can treat charitable sponsorship as a tax deductible expense, if the company receives a benefit that is related to its business.
Payments qualify as business expenses if the charity:
- publicly supports your products or services
- allows you to use their logo in your own printed material
- allows you to sell your goods or services at their event or premises
- links from their website to yours
Problem 4 – the training benefits the director personally, not the company!
If the company agrees with the training provider to pay for the training, HMRC would regard it as a benefit-in-kind. Tax and National Insurance would be payable.
It would be (marginally) better, from a financial perspective, to pay this out of dividend income from the company.
Problem 5 – beware the ‘pecuniary liability!’
If the shareholder/director signs up for the training, personally, but the company pays for it, then the company has settled the shareholder/director’s financial (‘pecuniary’) liability. It is as though the company had paid that amount to the shareholder/director as net pay, and they have used that to pay their liability. So, HMRC treats the amount paid as net pay, which has to be grossed up for tax and employee’s national insurance, and then employers’ national insurance added. This results in an even higher overall cost than the benefit-in-kind above!
So unless this is really a voluntary donation towards the cost of the training, it is cheaper, and certainly simpler, to just pay it personally.
The expert was Graham Jener, founder of contractor accountancy firm Jenner & Co.