Q. We organise training for employees overseas in the form of an employee incentive. The most productive employees get the opportunity to a 10 day all expenses paid trip to an overseas location. Are there any tax benefits or anything I can claim back on?
A. This is an area that has attracted a great deal of attention over the years from H M Revenue & Customs (HMRC) and is subjected to detailed legislation making it a difficult planning exercise to get right.
The question of whether the incentive is a Benefit In Kind (BIK) taxable on the employee or an allowable deduction against company profits will be dependent on many factors and on how the trip is planned and organised and each case will have differing factors that will affect HMRC’s decision.
In general for “work related training” to qualify for exemption under the provisions of Section 250 ITEPA 2003 and the cost not be taxable in the hands of the employee, the course or other activity must be designed to impart, instil, improve or reinforce any knowledge, skills. Additionally personal qualities which are, or are likely to prove, useful to the employee when performing his/her duties or will qualify/ better the employee to undertake the employment.
The training must relate to the employee’s current employment or to a "related employment".
There is no restriction on the way the training can be delivered. Self-tuition packages, computer based training, distance learning, work experience or work placement and informal teach-ins are all acceptable as are more formal classroom based methods. It does not matter whether training is delivered internally or externally, on a part-time or full-time basis.
A wide range of practical and theoretical skills will qualify for exemption so long as the skills are relevant to the employee. Where leadership and team skills are appropriate to the employee, participation in activities such as Outward Bound, Raleigh International, or Prince's Trust would qualify.
It is important to note that a payment or reimbursement of training costs is not exempt as a BIK under the above provisions if its purpose is to reward the employee. Expenditure incurred by an employer for a mixed purpose, intended in part to reward and in part for genuine training, will need to be apportioned. However, an apportionment is not always necessary just because an element of genuine training is enjoyable or recreational. For example, the use of a hotel's swimming pool and leisure facilities during a residential course would not require apportionment.
With regards to overseas trips HMRC pay particular attention to anything variously described as conferences, conventions or seminars which they view to be no more than incentives intended to reward past performance or to motivate employees for the future. HMRC will be looking to see if the business element is minimal, for example an address by a company executive. Where the itinerary consists largely of social occasions, excursions and leisure activities no deduction will be permitted for the cost of such trips and will be taxable benefits in the hands of the employees.
In reviewing the case HMRC would expect to see an itinerary for the trip showing precisely what activities were involved. It is not enough that the trip was authorised, or even required, by the employer. It is necessary to be able to demonstrate that the duties of the employment could not be performed without it. The insertion into an itinerary of a token business element, such as a meeting that could equally well have taken place at the employer's premises in the United Kingdom, does not make the travel cost necessarily incurred, see example.
HMRC sight the following example in its internal manuals:
“A company that employs sales agents invites the most successful of them to an annual sales conference in Marbella. All expenses are paid by the company. The conference lasts for 7 days but there are only 2 formal sessions, a pep talk by the managing director and a seminar on sales technique. The rest of the programme consists of social events. The benefit of the conference is chargeable under the benefits code. The cost is not incurred necessarily in the performance of the duties of the employment and the location of the conference is not a workplace”.
From the limited information provided in the question it would appear at face value that the overseas trip would not qualify under the exemption and the cost of the trip would be a taxable benefit assessed on the employees.
The company can arrange to pay the tax liability on behalf of the employees by making a PAYE Settlement Arrangement (PSA) with HMRC in advance of the expenditure being incurred if they so wished.
It is essential in these areas to seek professional advice at every stage providing full and detailed proposals so these can be reviewed and any risk or exposure minimised.
TaxWise is available to help answer any tax queries. Just call the Advice Service on 01455 852555 and one of our specialists will be happy to help.