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 wouldhelp Britain’s smallest firms exploit the opportunities ofa 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 andgenerate growth.

Mike Cherry, chairman of the FSB, said: The government should encourage more peopleto 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.



Praseeda Nair is an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.