Maximising tax savings: Deducting education and training expenses on the US and UK Tax Return

When it comes to tax deductions, understanding how to make the most of your education expenses can save you money on both sides of the Atlantic. The IRS and HMRC allow for the deduction of qualified educational and training memberships, but the rules can be complex.

In this guide, we'll navigate the intricacies of claiming education expenses on your tax return in the US and UK, providing valuable insights for individuals in various professional roles. Our expertise spans both U.K. and U.S. tax jurisdictions, enabling us to take a collaborative and integrative approach to your tax filings. We aim to maximise your tax savings and minimise the risk of penalties or audits.

Eligibility Based on Individual Factors

The IRS and HMRC evaluate the eligibility of training and educational memberships individually. Your eligibility may depend on factors such as your profession, industry, and employment status. For instance, while a software engineer may not be able to claim a cooking course, a chef is likely to be able to claim in both countries.

Self-Employed Deductions

Self-employed individuals can typically claim education memberships on their tax returns in both the UK and US. In the US, this would go on Schedule C, while UK self-employed professionals include it under "Business Expenses" in their self-assessment. For the U.K. tax return self-employed professionals will usually include the education expense under the “Business Expense” section of the self-assessment.

Variations in the US and UK treatment of the education expense for employed professionals

Many employers in the US and UK will cover any education and training costs for their employees. When this is done by your employer it will not be subject to tax, however, it will appear on your P11D which is later subject to taxation on the self-assessment.

Before 2018, employees could deduct unreimbursed work expenses, such as education and training costs, as miscellaneous itemized deductions according to the IRS. However, the Tax Cuts and Jobs Act of 2017 has suspended this deduction, with a possibility of reassessment in 2025. This being said, individuals falling into specific categories, including Armed Forces reservists, qualified performing artists, fee-based state or local government officials, and disabled individuals with impairment-related education expenses, may still be eligible for deductions based on specific criteria.

There is extremely limited scope under the UK tax system when claiming professional memberships against employed income. Training that has not been reimbursed by your employer is often claimable. It is generally easier to claim tax relief on the training if it has been recommended or approved by your employer or is a statutory requirement. If you are not required to file a UK self-assessment these expenses can often be claimed on the P87.

The US and UK require the training to necessary and relevant

To qualify for a claim on training and education expenses, HMRC mandates that the expense must be "wholly and exclusively" for your professional development and business. Meanwhile, the IRS evaluates claimable expenses based on whether they are "Ordinary and Necessary" for the business or trade.

Examples of training and education expenses we see on US and UK tax returns

For context, I have included a few expenses I have had clients claim for in terms of training and education:

Relevant courses on platforms such as Coursera, Udemy, Code Academy,
Short courses relating directly to individuals' professions i.e. a therapist claiming a short course from a university.
A range of workshops i.e. we have had an actor claim a voice coaching workshop and a yoga teacher claim a mindfulness training course.
Financial Advisors claiming courses from CIFA, LIBF etc.