Implant course fees and tax

Bob Cummings of Humphrey and Co, the Eastbourne based accountancy firm and member of NASDA, the National Association of Specialist Dental Accountants, explains why implant course fees should be an allowable expense.

Background

One of the most common questions asked by dental clients is “Can I claim my course fees against tax”. As with many tax issues the answer is not straightforward.

The tax legislation covering course expenses for self employed dentists states:

No sum shall be deducted in respect of any disbursements or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade or profession.

This is commonly known as “The Business Purpose Test”. The Inland Revenue internal instruction manuals provide this guidance for Tax Inspectors:

There is some uncertainty whether the cost of proprietors of a business attending a training course, directly related to the business activity, is deductible in arriving at the profits chargeable to tax.

Where attendance at a course is intended to give business proprietors new expertise, knowledge or skills which they lack, it brings into existence an intangible asset which is of enduring benefit to the business. We take the view that the expenditure is therefore of a capital nature, and deduction is prohibited.

On the other hand, where attendance is merely to update expertise etc which proprietors already possess, the expenditure is normally regarded as revenue expenditure and will be deductible if it satisfies the "wholly and exclusively ... for the purposes of the trade" test.

You should therefore allow proprietors a deduction for expenditure that merely updates existing expertise or knowledge but disallow any expenditure that provides new expertise or knowledge (particularly where it brings into existence a recognised qualification like an MBA)

Tax Inspectors also tend to take the view that if a course leads to referral work it must have provided new or additional expertise and is therefore not allowable.
Dentists will no doubt be asking – why would I want to attend a course that does not teach me something new?

Implant Courses

The last two years has seen a steady rise in the number of dentists undertaking Implant Courses. As the cost of such courses can be high tax relief is very much in focus.

The question therefore is do Implant courses pass the business purpose test and thus allow the associated costs to be claimed a tax deduction?

As Implant courses seem to range from independent one day per month courses to full MSc courses it is easy to draw different conclusions.

As a starting point the dentist must already have some knowledge or expertise. I would argue that this is the case:

All dentists will have at least some knowledge of restorative dentistry.
Implants are not a speciality recognised by the GDC.
The VT year now tends to include at least one day on Implants.

The fact that courses provide verifiable CPD is also a major factor in passing the business purpose test.

Certificate Courses

Many courses provide a certificate and may provide the opportunity for referral work. I would argue that a certificate is not a formal qualification and that referrals are a by product rather than the main purpose of attendance. Of course, not all dentists will seek referrals, especially in the period immediately after completing the course.

MSc Courses

Full MSc courses “bring into existence a recognised qualification” and thus would appear to fail the business purpose test as defined by the Inland Revenue.

However, the MSC course is in three stages:

Certificate
Diploma
MSc

The dentist is not obliged to complete all three parts. I would argue that the costs of parts 1 and 2 are allowable. However, I think it would be difficult to convince the Inspector of Taxes that the final, MSc, part is allowable.

Dealing With The Inland Revenue

Tax enquiries can arise for many different reasons. An abnormally high expense item is likely to trigger an enquiry.

I take the view that it is better to answer a question before it is asked. When claiming course fees which appear high it is advisable to provide some commentary on the additional information pages of the Tax Return. This should explain the nature of the course and establish the business purpose.

If the explanation is reasonable it should help avoid an enquiry.

Dental Limited Companies

The commentary above deals with self employed dentists.

With Dental Limited Companies on the horizon it is likely that many dentists will change from being self employed business proprietors to being company owner/directors. As a director the dentist will be an employee of the company.

The rules regarding the cost of training courses for employees paid for by the employer are more relaxed. The Inland Revenue’s view on such expenses, including costs relating to company directors, was detailed in a Tax Bulletin article in February 1997.

Although the article contains some caveats regarding personal benefits enjoyed by the director it appears that Implant Course costs would be an allowable expense in computing the company’s taxable profits.