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Membership bodies and workplace development
The Government has published a consultation document that reviews the tax treatment of fees and subscriptions to professional and other approved bodies and explores ways in which better targeting of tax relief could further strengthen and support the provision of workforce education and skills.
The current system of tax relief allows employees and office holders who are members of certain qualifying organisations to claim a deduction against their taxable earnings for the cost of their annual membership subscriptions. This tax relief provision has been available for nearly 50 years and the Government believes that it no longer reflects the way that work and training have changed in that time.
Current provisions for tax relief
The Income Tax (Earnings and Pensions) Act 2003 (ITEPA) makes provision for tax relief for amounts that anyone practising a particular profession, as specified in the legislation, is obliged to pay in order to do so. These include fees paid by health professionals, legal professionals, teachers and those working in the transport industries. Examples are fees paid by employees working in the air industry to obtain licences from the Civil Aviation Authority and by teachers for registration with the General Teaching Council. The conditions for claiming a deduction for tax purposes are that
- the duties of the employment involve the practice of the profession to which the fee relates, and
- the registration, certification, licensing or other matter in respect of which the fee is payable is a condition, or one of alternative conditions, which must be met if that profession is to be practised in the performance of those duties.
The ITEPA also allows employees to claim a deduction for annual subscriptions to bodies that have been approved by the Inland Revenue, where the activities of the body satisfy a number of qualifying conditions and are relevant to the person's employment. Examples of approved bodies include the Chartered Institute of Taxation, the Chartered Institute of Personnel and Development and the Institute of Payroll and Pensions Management. The current list of approved bodies is published in List 3, available at www.inlandrevenue.gov.uk/list3/list3.htm .
To qualify as an "approved body",
- the organisation must not be of a mainly local character, and
- the organisation must not be carried on for profit, and
- the objects of the organisation must be solely or mainly directed towards
- the advancement or dissemination of knowledge (whether generally or among persons belonging to the same or similar professions or occupying the same or similar positions),
- the maintenance or improvement of standards of conduct and competence among the members of a profession,
- the provision of indemnity or protection to members of a profession against claims in respect of liabilities incurred by them in the exercise of their profession.
Employers should note that current tax law requires employers who pay an employee's professional fees or subscriptions to report the payment on form P11D at the year end, even if the membership body is on the Revenue's approved list. However, employers may be able to obtain a dispensation if all such payments would qualify for a deduction.
Proposals for change
The Government believes that the current provisions for tax relief are biased towards specialist skills and that that may not be a sound basis for providing government support. The "solely or mainly" test that an organisation must pass to be an "approved body" has the effect of ruling out
- many organisations that make strong efforts to promote workforce development but that have other significant commitments, and
- sub-groups within organisations that are expressly created to provide and support learning opportunities for their members as part of a wider range of activities.
The Government is also concerned that, over time, many of the organisations on the list of approved bodies no longer meet the conditions or have ceased to operate altogether. This is unfair on organisations that are unable to gain approval because they cannot meet the qualifying criteria. There is an argument that the Inland Revenue should keep the list under review.
About one million individuals benefit from the tax relief provisions, at a cost of £;60 million. The Government wishes to consider new measures that would target that money on membership of organisations that meet criteria that are based around the development of the workforce skills of their members.
The consultation document does not contain specific proposals for achieving this objective. Rather, the Government is seeking views on the most practical and least regulatory approach that could be adopted, and on which criteria would best encourage greater investment in skills.
Any changes to the requirements for being an approved body will have an impact on
- membership bodies that are currently approved, which will have to review the nature of the learning opportunities they currently provide and move towards workforce development, and
- membership bodies that are currently unable to gain approval, which will have to ensure that the learning opportunities that they do provide are slanted towards workforce development.
The consultation document raises a number of issues for consideration by individuals and organisations that would be affected by, or who would benefit from, changes in the criteria for becoming an approved body. The issues relate to
- the nature of the criteria and how to measure the extent of an organisation's involvement in developing workforce skills
- how entitlement to approval should be monitored
- whether there are alternative ways of providing tax relief to individuals
- how sub-groups of organisations could obtain approval.
The deadline for comments is 29 February 2004.
(Source: www.inlandrevenue.gov.uk/pbr2003/membership-discussion.pdf )
...back to 12 December 2003
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For Payroll and Human Resource Professionals
