Expenditure on training an entrepreneur
Man learns throughout his life, and when running a business, some expenses for science can be included in company costs. Training an entrepreneur or other expenses related to his training is subject to a certain risk. Read the article below and find out when the expenses for educating an entrepreneur may be a business expense.
Training of the entrepreneur and the relationship with the conducted activity
The mere incurrence of an expense on a course, training or language learning is not enough to be able to talk about the right to include it in costs. First, it is necessary to refer to the general rule included in Art. 22 of the Personal Income Tax Act, which says that tax deductible costs are costs incurred in order to generate income or to maintain or secure a source of income.
There must therefore be a link between the expenditure and the activity carried out. If the entrepreneur runs an advertising agency, he will not include in the costs the expenses incurred on the welder's course, if he is completely unrelated to what he is doing and what he intends to do in the business.
Then it is necessary to check whether the given expenditure is not included in the catalog of items directly indicated in the Income Tax Act as not constituting tax deductible costs (Article 23 of the Act). Training expenses not included. However, it should be remembered that this catalog is open, which means that each expenditure should be assessed individually in terms of its legitimacy and relationship with the conducted activity.
Studies in costs
One of the most common questions that arises in connection with entrepreneur training is tuition fees. Many interpretations have been devoted to this topic, in which the tax authorities show how heterogeneous the jurisprudence is, depending on the specific situation.
In the case of university expenses incurred before starting a business, it is difficult to talk about a relationship with it, because education is a personal matter of the entrepreneur. Expenditure on studies is attributed to a private nature, as they increase the general level of knowledge. An example of such a position is the individual ruling issued on January 17, 2011 by the Director of the Tax Chamber in Warsaw (reference number IPPB1 / 415-937 / 10-2 / EC).
It was also loud about the case of incurring expenses for the legal adviser apprenticeship before starting the activity. On October 17, 2014, the Supreme Administrative Court issued a judgment (file reference number II FSK 2304/12), in the justification of which it was indicated:
“(...) when starting the legal adviser apprenticeship, the complainant could not be sure that she would finish it. Even more so, it was not certain whether he would start running a business as a legal advisor. Therefore, at the time when these expenses were incurred, obtaining income from economic activity was a future and uncertain event. In the light of the above, the relationship between the expenses incurred on legal adviser training and the income generated as a result of practicing the profession of a legal adviser is too distant and conditional to meet the requirements set out in Art. 22 sec. 1 u.p.d.o.f. Therefore, it is difficult to agree with the Applicant that the expenses made over three years, when she was not engaged in economic activity, could objectively contribute to the achievement of income, or serve to preserve or secure the source of income. In this case, expenses incurred before the start of the business cannot be considered incurred to maintain or secure the source of income as it does not yet exist. As a consequence, these expenses are in fact personal in nature and serve to gain professional qualifications - and thus cannot be considered a tax deductible cost from business activity, because they do not meet the conditions set out in Art. 22 sec. 1 u.p.d.o.f. (...) "
On the other hand, in the case of fees incurred after the commencement of activities, it must first of all be determined whether the expenditure is necessary in order to acquire knowledge or qualifications entitling to perform the activity in question. If, for example, a given postgraduate study, which is an expense on training an entrepreneur, allows for the opening of a new branch of the company's operations and it would not be possible without them, then such an expense is justified and may constitute a cost. An example is the individual tax ruling issued on May 28, 2014 by the Director of the Tax Chamber in Bydgoszcz (reference number ITPB1 / 415-287 / 14 / MP):
“(...) The applicant has completed studies in the field of Psychology with a specialization in clinical psychology of an adult. Currently, the Applicant deepens the acquired knowledge as part of postgraduate studies, courses, seminars and scientific symposia. The symposia are devoted to improving the skills of contact with the patient. (...)
The applicant uses the acquired knowledge directly as part of his business. It will allow the Applicant to broaden the profile of its activity and contribute to increasing the level of services provided. Expenses incurred to improve professional qualifications will be useful for the proper performance of business activity and increasing the generated income. (...)
On the basis of the future event described in this way, it should be assumed that the Applicant takes part in training, courses and symposia in order to increase the income from his business activity. In the case at hand, it is important that the acquired knowledge will allow the Applicant to broaden the profile of its activity and will allow it to raise the level of services provided.
Therefore, expenses incurred in connection with participation in trainings and symposia (...) as related to the conducted business activity, actually incurred and properly documented, may constitute tax deductible costs of the non-agricultural business activity conducted. At the same time, it should be noted that it is the taxpayer's responsibility to prove the existence of a causal relationship between the expenses incurred and the revenues earned, and the circumstances that their incurring has an impact on the amount of revenues achieved or on maintaining or securing the source of revenues, which is non-agricultural economic activity. Demonstrating the existence of such a relationship is a necessary condition for recognizing a given expense as a tax deductible cost. (...) "
However, the case law is not always beneficial for entrepreneurs. For example, the Director of the Tax Chamber in Łódź, in the individual ruling issued on May 16, 2013 (reference number IPTPB1 / 415-147 / 13-2 / AP), stated that the expenditure on doctoral studies serves to raise the general level of knowledge and cannot be considered as tax cost. The entrepreneur planned to incur expenditure on studies in order to increase competences and improve the quality of services provided, which was to translate into increased customer confidence and higher rates for the services provided.
Learning foreign languages in costs
Entrepreneurs very often cooperate with contractors from abroad and then, in addition to a good commercial offer, knowledge of a given foreign language may be necessary. Expenditure on training an entrepreneur in the field of language courses has not been included in the Income Tax Act as an exception that cannot constitute a corporate cost. It is therefore important to determine whether the expense:
- it serves to raise the general level of knowledge and is not essential to the activity or
- as related to improving professional qualifications and acquiring skills, it is indispensable in running a business,
In the first case, this type of expenditure is personal and therefore cannot be recognized as an expense.
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In the second case, if the entrepreneur is able to prove that the expenditure is related to the achievement of specific revenues or securing their source, and without knowledge of a given foreign language, he would not be able to cooperate with the contractor, it may constitute a company cost. An example of such case law is the individual interpretation issued on May 19, 2010 by the Director of the Tax Chamber in Bydgoszcz (reference number ITPB1 / 415-284 / 10 / PSZ). The taxpayer incurred an expense related to learning the industry vocabulary:
“(...) The description of the facts presented in the application shows that the economic activity is conducted in the field of commercial intermediation between Chinese and French companies. You have completed your studies in this field, but in order to improve your qualifications, you intend to go to China for a language supplementing course organized there. Thanks to this, you will be able to take full advantage of the opportunities offered by cooperation with Chinese and French companies. Completing the course will allow you to fully perform the orders correctly.
Therefore, if the expenses incurred for increasing professional qualifications, i.e. fees for a language course, commuting to this course are related to business activity and, consequently, influence the creation or increase, now or in the future, of income, then the expenses for this purpose may be included in tax-deductible costs, however, provided that they are properly documented. (...)”
Entrepreneur training - books and press materials
Professional literature has not been indicated in the Income Tax Act as an absolute expense that cannot be a cost. Therefore, here you should only consider whether the books or press materials actually relate to the industry in which a given entrepreneur operates. It will be reasonable, for example, to purchase books on tax issues by the owner of an accounting office, or on programming by a programmer.
Entrepreneur training, diets and accommodation
As part of further education, the entrepreneur may participate in training courses or conferences related to his industry. Often, however, they do not take place in the entrepreneur's place of residence and it is necessary to travel or even overnight.
If participation in a training or conference is related to the conducted activity and thus becomes costs, then also the travel costs will constitute the company's expense. These can include, for example:
- fuel invoices,
- receipts for toll motorways,
- parking tickets or invoices for parking.
Such a trip can be treated as a business trip and thus the entrepreneur has the right to charge a daily allowance and include it in the costs. It is similar in the case of travel to studies (which are considered a reasonable expenditure in business). On this issue, among others, Director of the Tax Chamber in the interpretation of February 10, 2009 (reference number: ITPB1 / 415-764 / 08 / AK):
“(...) if the trips you make in connection with your studies are business trips related to non-agricultural business activity, then the allowances related to these trips may be included in the tax deductible costs, but only in the part not exceeding the amount of allowances due to employees (...).”
The expenditure on training an entrepreneur can therefore constitute a company cost. However, one must bear in mind the obligation to indicate the relationship between the incurred expense and company revenues and its legitimacy. One of the most important issues is also to determine whether the expenditure is closely related to the entrepreneur's activity, or whether it serves to raise the general level of knowledge. In the second case, according to the issued jurisprudence, such an expense cannot constitute a business cost.