When Life Coaching sessions are and aren’t tax deductible

As the director and owner of a limited company, understanding which expenses you can deduct for tax purposes is crucial. One area that often causes confusion is whether life coaching sessions are a tax-deductible expense.

Let's start with the basic principles set by HMRC and see how they might apply to life coaching, writes chartered accountant Helen Christopher, founder of contractor accountancy advisory Beansprout Consultancy.

Basic principles of tax deductible expenses

The “wholly and exclusively” concept is a cornerstone principle of UK corporation tax.

HMRC’s view is that an expense must be "wholly and exclusively" incurred for the purpose of the trade, in order that it can be deducted from your taxable profits.

But the concept of “wholly and exclusively” can be complex to apply, especially where duality of purpose might exist, and an expense can serve both a business and personal purpose. This distinction is key when considering the deductibility of life coaching.

The ‘wholly and exclusively’ principles: complexities

When considering whether an expense has been incurred wholly and exclusively for the purposes of the trade, the following should be assessed:

• Intrinsic duality: Expenditure, where it is impossible to separate the trading and non-trading elements, is “intrinsic”. Be in doubt -- this needs to be extinguished from expenditure which has trading and non-trading purposes that are separable and quantifiable. As a result of this duality, the whole amount is disallowed for tax purposes.

Common examples would include ordinary clothing, living accommodation, medical expenses, and legal fees for helping avoid a conviction.

• Incidental benefit: An incidental benefit conferred on the business by an expense does not preclude the cost from being incurred wholly and exclusively for the purposes of the trade.

Incidental non-trade benefits are ignored. For example, a director travels abroad on a business trip. While away the director enjoys the scenery and weather and takes in a few of the sights as he travels between meetings. The additional benefits (weather, scenery etc) do not mean that the expenditure is not wholly and exclusively for the trade.

• Dual purpose expenditure: Expenditure will only be wholly and exclusively for the purposes of the trade if all the reasons for the expenditure classify as business purposes.

In my example of the director travelling abroad, if the director combined the visit to the client with a holiday with his wife, the expenditure is for a dual purpose (trade and private). In this case, we would look to identify elements of the expenditure that relate to being for the trade and elements that relate to private expenditure and seek a deduction for the portion relating to business.

Life coaching: business or personal?

Life coaching is viewed under HMRC’s more generalised heading of "Training and Development."

HMRC’s Business Income Manual BIM47080 provides us with some guidance on this area. This guidance was updated in early 2024 and provides numerous useful examples of what is and what is not deemed allowable.

According to HMRC, training courses aimed at enhancing general skills that are relevant to the business may be allowable.

However, expenses aimed at improving personal skills not directly related to the business are not deductible.

On a forum and when asked about expenses, HMRC stated: “You can claim allowable business expenses for training that helps you improve the skills and knowledge you use in your business (for example, refresher courses).”

Key questions to ask yourself to determine if life coaching is an allowable business expense

To determine if life coaching sessions are deductible, you need to consider the following questions:

• What is the primary purpose of the coaching? If it's primarily for business improvement, it has a better chance of being deductible.
• Is there a clear link between the coaching and your business activities? The more directly the coaching relates to your business, the stronger your case for deductibility.
• Can you provide evidence? Documentation such as invoices, coaching plans, and progress reports that tie the coaching directly to business objectives can support your claim.

Contractors, here's the life coaching sessions which ARE likely to be tax-deductible...

If the life coaching sessions are specifically focused on improving business-related skills, such as leadership, communication, or productivity, they might be considered a business expense.

Some examples might be:

• Executive Coaching: Targeted at enhancing leadership skills.
• Performance Coaching: Aimed at increasing workplace efficiency.
• Career Coaching: Focused on career development within the company.

However, if the coaching sessions are more personal in nature -- dealing with general life issues, personal development, or unrelated personal goals -- they are unlikely to qualify as a business expense.

And finally, a recommendation when putting life coaching on expenses

To increase the chance of any life coaching sessions meeting the “wholly and exclusively” test, my recommendation is to keep detailed records of how the coaching relates to your business, and if you receive both personal and business coaching, ensure records and invoices clearly distinguish between the two.

By understanding and applying these principles, you can make informed decisions about the deductibility of life coaching expenses and effectively manage your business finances.