Training Expenses [Archived 11/01]
ILAs have been suspended. This does not affect the principal of training costs being treated the same way when incurred by direct employees or by service company workers in employment type contracts.) 11/01
A Statement From The Paymaster General
There have been suggestions, especially from IT and engineering consultants, that expenses for "work related training" should be an allowable deduction in the calculation of the minimum amount of tax and National Insurance Contributions that workers with service companies should pay, if their engagements meet the accepted definition of employment.
Our intention is that workers in service companies should be in the same position as employees with regard to what help they can get with training they pay for themselves. At present employees can claim tax relief for certain costs of their own vocational training. This tax relief is being withdrawn when Individual Learning Accounts (ILAs) are launched next year. ILAs will introduce a range of discounts and grants for eligible learning. Anyone, including a service company worker, will be able to open an ILA. No deduction for training is therefore appropriate for service companies in calculating the minimum salary for tax and NIC purposes.
I announced, on 23 September, that a 5% flat rate deduction for expenses would be allowed on top of all the other expenses, which will normally be available to an employee. This deduction will be available even where the worker is only involved in contracts which meet the definition of employment, and carries out no other business at all.
The 5% deduction is in recognition that there are costs associated with running a service company. It is for the service company to decide how best to use the 5% deduction and that choice could be to provide for the worker's training needs.
[In addition to the 5% deduction, a deduction may be given for expenses paid by the service company which the worker would have been allowed to claim, under the normal Schedule E rules, if he were directly employed by his client. These are; broadly, certain travel expenses, other expenses wholly, exclusively and necessarily incurred in the performance of the duties of the relevant engagement, and certain specific items such as some professional subscriptions and premiums for professional indemnity insurance.]
We believe that we have struck the correct balance. Our proposals ensure an even-handed approach with the expenses allowed to employees whilst the 5% deduction recognises that there are additional expenses in running a service company.
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