Some of our applicants are considering support from their employers to help share the cost of the course. The following guidance may help employers and employees be aware of the possible options and the savings to be made. Please note:
Salary sacrifice arrangements and their impact on tax, national insurance and other financial matters are a complex area and tax law changes every year. Employers should take appropriate advice and should not rely solely on this brief outline.
There are two ways an employer may choose to support their member of staff:
1) The Employer directly funding the course
Students may be able to agree that their employer will pay all, or part of, the relevant course fees. Where the employer is a company subject to corporation tax, we would expect that the funding of educational courses for employees would represent corporation tax deductible expenditure. The exact position will of course depend on the specific facts but such expenditure would typically be viewed as part of their normal workforce costs.
Where the company is profitable, such expenditure may reduce the level of corporation tax payable. In this situation, the effective “net” cost of the course fees would be: 100% minus the effective tax rate (this would currently be 77% or 80% of the total cost depending on the applicable tax rate). Should the company be loss making, the costs may increase the level of their losses but the company may be able to benefit from a future tax deduction should the company return to profitability.
If the employer is not subject to corporation tax there is no such potential tax saving.
Where an employer pays for educational courses on behalf of an employee there may potentially be a taxable benefit in kind for the individual. However, there is a statutory exemption that applies to ‘work related training’ that frequently exempts any such charge. The rules are relatively widely drawn and academic courses will qualify as long as the knowledge/skills are relevant to the employee’s role/duties. HMRC provides guidance on the costs that may be exempted and the meaning of “work related training” at the links below.
2) The Employee funds the course through a Salary Sacrifice Scheme
Where an employee is expected to cover the cost of some, or all, of the course fees there is the potential for the total cost to be reduced by using a salary sacrifice mechanism. As part of such an arrangement the employee would contractually give up their entitlement to an amount of their salary and the employer would meet the cost of the course directly.
Where the provision of the course is exempt (as set out above) this would result in a saving of income tax and national insurance contributions that would otherwise have been required if the employee was funding the course fees out of their net/take-home pay.
Depending on the circumstances, savings can be substantial, particularly for higher rate tax payers where overall costs may be halved. Depending on the way the sacrifice arrangements are structured, the employer may also be better off as a result of reduced national insurance contributions (these are charged at a rate of 13.8%).
Any such arrangements would be a matter for the employee and employer to agree and this can have an impact on the individual’s wider benefits such as their pension. We would recommend anybody considering implementing salary sacrifice arrangements takes appropriate advice.