HMRC has updated its guidance to provide greater clarity on the tax treatment of training costs incurred by the self-employed.  

The self-employed may deduct training costs in calculating their trading profit or loss where the following two conditions are satisfied:  

1. the expenditure is incurred wholly and exclusively for the purposes of the person’s trade; and   
2. the expenditure is not capital expenditure (ie, it is revenue expenditure). The second test in particular can be difficult to apply in practice. 

HMRC states that training costs are revenue expenditure where the intention is to update current or provide new skills or knowledge in the person’s existing trade.  

This will usually include training to keep up with advances in technology and changes in practice in the person’s business area. Depending on the circumstances, it may include  training ancillary to the person's trade (eg, a course on bookkeeping).  

However, a deduction may not be claimed for training that allows the person to start a new business or expand into a new, unrelated area of business. HMRC believes that this is capital expenditure.  

Examples are provided of circumstances in which training costs may and may not be deducted.  

HMRC consulted on options to reform the rules for tax relief for training costs in 2018.  

Further reading: 

• BIM 35660: Capital/revenue divide: intangible assets: proprietor's training courses
• BIM 42526: Specific deductions: administration: own training courses
• Check if the cost of training could be an allowable business expense