Extend self-employed tax reliefs to boost retraining, urges ATT

Under current rules, the self-employed can only deduct the costs of training incurred “wholly and exclusively” for the purposes of their existing business, with upskilling or retraining with a view to changing occupation not covered.

This differs from the relief afforded to employers, where businesses can more easily claim tax relief for the cost of training employees, even in new skills.

Senga Prior, chair of ATT’s Technical Steering Group, said:

“As far as possible, employed and self-employed individuals should have a level-playing field when it comes to tax relief on work-related training expenses. Widening the scope of relief to the self-employed would be an incentive to invest in self-funded, work-related training, and would therefore provide a welcome boost to the economy.

“Allowing tax relief for re-skilling or retraining in a new field could help individuals to set up new, profitable businesses. It could also help to address current shortages in certain parts of the labour market – for example HGV drivers.

“This would benefit not just the individuals in question, but also ultimately the Exchequer as the resulting new, more profitable trades will generate additional tax revenues.”

Changes to these rules were previously consulted on in 2018,² with the Government deciding at that time not to extend the existing tax reliefs available as it did not believe there would be significant take-up. ATT has urged it to revisit the issue, saying aligning the relief now for both the employed and self-employed would allow more people to start potentially profitable businesses and address labour shortages.

It added that the relief could still be subject to a condition that it is for the purposes of an existing or future trade, by allowing costs to be deducted as part of an extension to existing pre-trading expenditure rules.³ This would allow relief for the cost of training provided it was undertaken seven years or less before the start of the new business.

Senga Prior continued:

“Our members report that self-employed clients are often surprised and disappointed to find that relief is not available for the costs of acquiring new skills to develop their business and struggle to understand the reasons for this.

“In light of the changes to the employment market which have arisen in recent years due to the COVID pandemic and EU exit, and the ongoing economic pressures facing businesses and individuals, we strongly urge the Government to revisit this issue.”

Notes for editors

1. ATT budget representation on extending relief for self-employed training costs.

2. HMRC and the Treasury consulted on "Taxation of self-funded work-related training".

3. HMRC’s Business Income Manual.