Annex 1: Minor Changes in the Law Change 16: Trading income etc: retraining courses: deduction no longer dependent on employee’s exemption: sections 74 and 1238 and Schedule 1
This change removes the link in the source legislation between the employee’s exemption and the employer’s entitlement to a deduction.
This change brings the income tax and corporation tax codes back into line. It also applies to management expenses.
Section 588(3)(b) of ICTA permits a deduction when:
	by virtue of section 311 of ITEPA 2003, no liability to income tax arises in respect of the payment or reimbursement [of retraining course expenditure].
The requirement for the deduction to be allowed in section 74(1) or 1238(1) is that the “relevant conditions” must be met. “Relevant conditions” is defined in section 74(2) or 1238(3) which cross-refer to the detail of the conditions in section 311 of ITEPA. That does not include the employee’s exemption from tax under that provision.
This change removes the requirement that the employee must be exempt on the benefit under section 311 of ITEPA. An employee may not be taxable on the employment income at all. That may be on account of the employee’s residence position or on account of where the duties of the employment are performed. In such a case there is no need to deny relief to the employer.
This change applies also to the corresponding rule for expenses of insurance companies in section 76ZD of ICTA (inserted by Schedule 1 to this Act).
The effect is that the employer’s entitlement to a deduction ceases to be dependent, in part, on the employee’s exemption.
This change is in taxpayers’ favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.