Tax & admin · 11 December 2017

HMRC urged to give self-employed full tax breaks for learning new skills

Sole traders are currently unable to claim tax breaks of training that acquires them new skills
Sole traders are currently unable to claim tax breaks of training that acquires them new skills

Allowing self-employed workers to undertake tax-deductable skills training would help Britain’s smallest firms exploit the opportunities of a modern economy, the Federation of Small Businesses (FSB) has claimed.

In a new report, the organisation exposed a deficit of technical abilities within small UK firms that restricted productivity levels and limited future growth, and produced a roadmap for closing the skills gap.

A quarter of survey respondents lacked confidence in their basic digital abilities, while over a fifth cited high costs as the main barrier to further training. Meanwhile, half considered technical skills as more important to growth than interpersonal or self-management.

The FSB has subsequently asked HMRC to consider aligning the tax-deductable training opportunities available to business employees with Britain’s self-employed workers.

Currently, self-employed workers are not entitled to tax breaks for the acquisition of new skills through training schemes. They can class the upgrading of existing skills as directly relatable for their business, and are then able attribute expenditure on the course as revenue and tax-deductable. However, no tax breaks are available for training undertaken which develops new expertise, knowledge or skills which they currently lack.

Read more: How a small business can build a bridge over the digital skills gap

Such courses are considered by HMRC as an “enduring benefit” to the business, meaning tax deductions are prohibited by the Income Tax (Trading and Other Income) Act 2005, where official qualifications, such as Master of Business Administration cannot be claimed for.

The FSB argued that the dividing line between “upgrading” existing skills and learning new ones was an “increasingly grey area”, and conflicted with the government’s messages to businesses about the importance of keeping pace with the demands of the modern labour market.

The study cited the example for a small retail shop owner, who would not be guaranteed tax breaks for training which allowed them to take their business online.

Aligning training tax breaks for sole traders with those currently available for employees, the FSB claimed, would level the playing field for the smallest firms and generate growth.

Mike Cherry, chairman of the FSB, said: “The government should encourage more people to train by offering tax breaks to self-employed who attend training to develop new skills, not just to refresh existing skills.”

The report claimed the absence of full tax breaks threatened to disincentivise entrepreneurialism among the self-employed, “as sole traders are put off from developing the skills needed to exploit emerging areas of business and the economy”. It urged HMRC to change the tax treatment of training for sole traders to improve chances of success in a rapidly changing economy.

Cherry added: “We know that embracing digital technology can help businesses in every sector to be more productive. Firms risk being left behind unless they have the skills to take advantage of technology to remain competitive and responsive to their customers.

“We need to highlight the benefits of going digital and then make sure that small businesses and their staff can access basic digital skills training that meets their needs through initiatives like the National Retraining Scheme. If we can harness the digital potential of small firms, we stand a real chance of creating more world-beating businesses and boosting growth”.

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Martha Lane Fox

 

Martha Lane Fox doesn’t believe government’s digital strategy goes deep enough

It’s no secret that too many of the UK’s small business owners are yet to fully embrace digital technology, a plight that Martha Lane Fox is keen to draw a line under.

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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