Freelancer training and tax: when a skills course is an allowable expense

With plenty of creative industries freelancers still at sea, the announcement of a second coronavirus lockdown starting this Thursday will likely cause many to reevaluate their professional skills and check whether more services could be ‘bolted-on’ to enhance their offerings.

Whether it lasts the envisioned four weeks or longer, freelancers will want to appear to be an attractive candidate to clients once the lockdown lifts.

Time to refresh your freelance creative skills? The government thinks so

So, updating skills or improving professional development may come into its own over this next shutdown month.

Additionally, the government itself has suggested that those self-employed individuals working in the hardest hit sectors, many of which are within the creative industries, may want to think about retraining and learning a new skill.

But before freelancers can enroll on a new training course, there’s a very important question to ask, writes Marc Seymour, director of Taxevo. Who will foot the bill?! And related to that, another question – will the training be an allowable self-employed business expense and therefore tax deductible?

What training are freelancers able to claim for?

The training must be relevant to your profession and therefore be demonstrable to generate income for you as a freelancer.

The training must enhance or reinforce your current knowledge, help you to do a more proficient job, complete the work faster, and overall, enable you to perform your work better.

Basically, any training undertaken must be at the benefit of your sole trader business. Or your limited company if you’re a freelancer who has incorporated your business.

If you’re able to demonstrate that you’ve met most; if not all of the above prerequisites, then HMRC states that as a self-employed individual, you’re able to claim tax relief against the cost of the training. You’re also able to claim for associated costs, such as accommodation and travel expenses.

For more technical information, freelancers fancying an upskilling course should take a look at HMRC’s official guide on claiming for training expenses.

But as readers of the guide will notice, being able to get tax relief on that retraining which the government has suggested for ballerina ‘Fatima’ and others, is effectively ruled out. Maybe the government ought to rethink the tax rules on retraining to support their own recommendation to the self-employed and others, if they really are serious about supporting workers in the “post-covid economy,” as they have described it.

If the training is for you as an incorporated business owner…

If you are the director of your own limited company, there’s a little more leeway as to the types of training you’re able to claim for, than if you’re a sole trader. Courses which are aimed at improving your ‘soft-skills’ such as management skills, dealing with stress, leadership and time management are all allowable.

These types of training can add value to your business offering, as they’ll make you a more effective and efficient professional, and in turn make the company more productive.

If the training is for an employee…

Generally-speaking, if the training is wholly for the benefit of the company, then it’s an allowable, tax-deductible expense. A good rule of thumb is to ask yourself if it would benefit the company. If you’re still in doubt, and to be on the safe side, double-check the HMRC guidance.

If the upskilling is online and for a sole trader…

To reiterate, if the training course enhances your skills in your existing line of work as a freelance sole trader, then fine – you can get tax relief from HMRC.

And if the course your eyeing is online, then as long as the above holds – i.e. that the internet-based course builds on your existing area of expertise, then that’s great for tax purposes. Given the lockdown in England starts this Thursday and runs until early December, an online course could be the perfect way for freelancers to make themselves more attractive to potential clients.

What about a training course overseas?

During the imminent lockdown, attending a training course overseas is unlikely to be a prospect for many, but if it’s something you’re planning when travel restrictions are loosened, then read on.

For tax purposes, you’ll need to prove to HMRC that the trip was solely for the training, and not for personal reasons.

To be successful with your training course claim, you’ll need to keep a record of your itinerary, training location and times you were there. You’ll also need to prove that the training was necessary for you to gain new skills which will ultimately benefit the business.

What training aren’t you allowed to claim for?

Unfortunately, a university degree or residential course whereby you learn a new skill which is not transferable to the services your business provides isn’t going to be an allowable in HMRC’s eyes. Interestingly, you may be able to pay for the degree through your sole trader business and claim it as a capital expense, but you won’t receive tax relief. Again, if you’re unsure here, speak to your accountant. After all, your accountant should have done their training, even if you’re unsure about yours, so put theirs to good use!

If in doubt, double-check with an expert!

Before undertaking any new skills course, training, or professional development activity which you think you may be able to claim through your business, it’s always advisable to double-check with your accountant. You don’t want to be ‘in’ with your skills but out-of-pocket when it comes to footing the bill!