Let The Taxman Pay For Your Training
Today I want to talk to you about how you can offset the cost of your training, so whether you’re thinking about becoming a physical intervention trainer or a self-defence trainer, it’s how you can offset the cost of that, that investment, against tax.
Now, particularly if you’ve been in an employed role, where you pay PAYE or base-rate tax or even high-rate tax over the last three years, how you can offset the cost of your investment against that tax.
Making a Loss In Your First Year of Trading Can Also Be A Good Thing!
And what’s even better is, if you make a loss in your first year of training, you can even carry that back three years and offset that against your PAYE tax.
Now, before we go any further, I’m not a qualified accountant, nor am I a tax specialist, so I cannot give financial or tax advice. However, the following information has been obtained from HMRC and a qualified accountant.
But for your own peace of mind, please do your own due diligence.
Live Transcript with HMRC on the 21st May 2018
Let me talk you through you a transcript of a live chat that I had with HMRC (Her Majesty’s Revenue and Customs), at 4:15 PM on the 21st of May, 2018.
I asked this question: “If I wanted to start a new business, teaching self-defence,(and of course this would apply to physical intervention, physical restraint, and any other training course you’re looking at doing), would any training costs involved become qualified to be tax-deductible?”
The response I get is: “You would only need to pay tax on your profit from self-employment”.
I thanked them for that and then I said: “Yes, I understand that, but would my training costs, to gain the qualifications, be tax-deductible?”
The response I got was: “You can claim expenses on the amount you have had to spend to become qualified”.
I responded to that with the following: “Yes. To be specific, I need to get qualified to start my new business and the cost of those qualifications are quite a lot of money. But if those qualifications are tax-deductible, then it makes it more attractive to do it.”
The response from HMRC was: “Yes, that’s fine. You will be able to claim the tax relief on those expenses when you complete your tax return”.
Further Confirmation and Clarification
Now, I did a bit of research on this, and there were some websites that were giving tax advice and some said that you couldn’t claim it back if you hadn’t started your business yet.
In other words, they were saying that if you were going to start a new venture, and say for example you were a healthcare assistant or a dentist or a doctor or a lorry driver, and you wanted to become a self-defence or a physical intervention trainer, because that was a new venture, you wouldn’t be able to claim the expenses back, because they’re not related to your current employment.
So I asked for clarification, and this is what I asked.
I said: “I’m a little confused, as I’ve been researching this and I’ve been informed that if you are self-employed and you undertake training to keep your current skills updated, then any such training costs will be allowable. However, if you undertake training to acquire a new skill, then this will not be allowable. Hence why I’m contacting HMRC directly.”
In short, I was trying to get clarification on what I’d researched on the web.
HMRC’s response was: “As long as you keep any receipts that you will receive from the training, then you will be able to claim for the expenses. We may ask you for documents to prove you paid the amount, so if you will be able to provide us with the documents and we believe the expense is justifiable, then you can claim back the training costs.”
My response to that was: “That’s great. So just to be crystal clear, if I undertake training to become self-employed in a new occupation, any training costs are tax-deductible”.
And the response from HMRC was: “Yes, that’s correct”.
But What If You Make a Loss In Your First Year?
Now, of course, this is based on profit, on the fact, you might make a profit. But what if you actually make a loss?
Well, I covered that too. And this is a transcript of a live chat that I’ve had with HMRC at 11:51 AM on the 22nd of May, 2018.
Live Transcript with HMRC on the 22nd May 2018
I asked the question: “Is it true that I can claim a tax rebate against my previous employed PAYE earnings if I start a new self-employed business and make a loss in my first year?”
HMRC put me on to a PAYE specialist and they said this. “Yes, that is correct, as long as you are not using the cash basis for your accounts. Please see HS227 on gov.uk website for more information”.
I asked what the cash basis was, and HMRC said: “The cash basis is a simpler method of preparing accounts especially for small businesses”.
I said: “I also see from HS227 that I can carry forward any loss into later years as well. Is there a limit on how many years a loss can be carried forward?”
The response from HMRC was: “The carried-forward loss is to be set against the next profit of the same business.”
You Can Carry Any Losses Back and Also Forwards
Now, what this means is, is that if you start a self-employed business, self-defence trainer, physical intervention trainer, any self-employed business, doesn’t matter, and you make a loss in your first year, you can offset that back three years against your previous three years’ PAYE, and you can even carry that forward, too. So let me give you an example.
An Example of a £10,000 Loss In Your First Year of Trading
Right, let’s say this is your first year self-employed, you’ve been employed by someone else for the previous X amount of years, and you’ve started your own business and in the first year, you make a 10,000 pound loss.
Well, what you can do is you can offset against your previous salary.
So if your previous employed salary, say, was £24,000 per annum, and you paid base rate tax at 20% on that, you’d have been paying £4,800 per year tax on a 24,000 pound per year salary.
So in the three years previous, you’d have paid £4,800 times three, which equates to £14,400.
That would have been the tax you’d have paid over the previous three years in your employed role.
That means you can take the £10,000 loss that you’ve made in your first year, or up to three years of training and offset that against the tax you paid, and you become eligible for a £10,000 tax rebate.
Now, I checked this with our accountant, and I got a tax specialist on it, and this is what they confirmed.
Confirmation From an Independent Accountant
They said, “A loss incurred in the first year of self-employment (or any of the next three years) can be offset against current tax year income from other sources, and also can be carried back against the total income of the three previous tax years, starting with the earliest year.”
So they’ve just confirmed what we’ve said. And what that means is that sometimes, therefore, losing is winning because you don’t actually lose anything, you get it back from previous tax.
Well, I hope you found that information useful, and like I said, I’m not a tax specialist or an accountant, so please do your own due diligence.
In fact, get on the live chat with HRMC and check it out for yourselves.
But the beautiful thing is, if you’ve been employed over the last few years, you can offset the cost of any losses back against the tax you paid as a PAYE employee. So that’s a great bit of news for you.
I hope that helps.
If you have any questions, please get in touch or leave a kind comment below.
To find out more about our next BTEC Level 3 Self Defence Instructor Award Course click here – https://www.nfps.info/self-defence-trainer/
To find out more about our BTEC Level 3 Physical Restraint Instructor Award Course click here – https://www.nfps.info/physical-intervention-trainer-course/
Other Useful Links
You can find out more from the HMRC website here – https://www.gov.uk/expenses-if-youre-self-employed.
MoneySavingExpert.com – https://www.moneysavingexpert.com/reclaim/uniform-tax-refund