HMRC’s Stealthy Tax Guidance Updates: Navigating the Evolving Landscape of Training Expenses

HMRC Sneaky changes to guidace and changing in Training

Tax can be a fast-moving environment and is, by nature, ever-evolving. Keeping up-to-date on tax legislation and guidance is not only paramount for those of us practicing in tax but also for business owners who are potentially seeking to prepare their own accounts.

You would hope that HMRC would ensure that all changes to their guidance is broadcast so that advisors and traders can be kept informed as to the workings of the UK tax system; however, HMRC is known to try and sneakily change their guidance without properly informing those that could be affected; one tactic they cleverly employ is the use of well-timed news.

In today’s example of this, we present an amendment made to HMRC’s guidance on training. This guidance was last updated within the same week as the Spring 2024 Budget. This was a time when our news was full of tax news but none of it surrounding training. 

You may be thinking, how large of a change could HMRC have possibly made to such a specific area of guidance? In order to answer that, we will have to cast your mind back and review the old rules surrounding training:

While the rules are long and can be rather dull, they boil down to the following:

• Expenditure spent by a sole trader who wishes to update their existing knowledge is classified as revenue and thus an allowable deduction against trading profits.
• Expenditure on a course that provides new knowledge is classified as capital and therefore not an allowable deduction against trading profits.

This is demonstrated in the below screenshot from 28 September 2022.

However, if you look at the Business Income Manual today, you will find that HMRC has updated their guidance to state that both training on existing knowledge and new knowledge (relevant to the trade) is an allowable business expenses. Later in the article, they confirm that training on areas that are not in an existing business area is “unlikely to be an allowable deduction.” Below is a screenshot from 24 April 2024.

While this may seem like a minor area of change, this change could allow the estimated 3.1 million sole traders around the UK to claim expenses for the necessary training incurred to further develop and modernise their existing area of business. 

HMRC has not provided concrete and detailed definitions of what is classified as within an owner’s existing business area, simply providing extremely black-and-white examples, such as a makeup artist who wishes to move into becoming a tattoo artist. This is clearly a complete change in their business area.

From our past experiences, the most likely way we are going to define these new rules is by individuals pushing their luck, likely ending up with HMRC pursuing tribunal and providing advisors with case law on the area, this will unfortunately result in someone losing their case in order to determine the true limit.

HMRC is more than likely being intentionally vague with new guidance in the hope that people ‘play it safe’ and don’t claim for expenses that may actually be allowable. Should HMRC announce each change to their guidance, people would come forward and seek HMRC clearance before incurring an expense. This would put excess pressure on their already failing helplines and potentially cost HMRC funds in lost tax revenue. 

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