There are two ways of looking at subscriptions to organisations to decide if they are tax deductible for the Limited Company, ( the employer) , and a tax free expense to the employee.
Subscriptions paid due to the employee/director's employment
Where performance of the employees duties require membership of a professional organisation in order for the employee to carry out their duties then this subscription cost will not be taxable on the employee if refunded by the employer.
The cost of the subscription must have been bourne by the employee, it cannot have been paid for by the company directly.
If a dispensation is not in place with HMRC then the full cost of the reimbursement should be shown on the employees P11D, with a S336 claim for the cost so that the reimbursement does not attract wither tax or NI for the employee.
If refunded by the employer to the employee/director the cost of the subscription for the employer should fall within the "wholly and necessarily for the business" test and therefore by deductible against Corporation Tax.
If not refunded by the employer, the cost of the subscription can be claimed as a deduction to earnings on the Personal Tax Return of the employee director.
For this to happen there should be a contract of employment in place, and Directors may wish to consider the impact this would have on their Director's salary, please see our guidance on choosing the correct Director's salary.
Subscription due to knowledge/skill/exercise of a profession
Where the director or employee is a member of a professional organisation or group because of the profession in which he/she is employed then in order for the cost of the subscription to be refunded by the employer as a free of tax reimbursement, the membership organisation needs to be listed on the HMRC's list of approved organisations.
The cost of the subscription should have been bourne by the employee not the employer, and can then be refunded by the employer or claimed on a Personal Tax Return as in the example above.
If a dispensation is not in place with HMRC then the full cost of the reimbursement should be shown on the employees P11D, with a S336 claim for the cost so that the reimbursement does not attract wither tax or NI for the employee.
HMRC Guidance is quite clear that in order for the subscription to be deductible against tax for the employee:-
An annual subscription to a body shown in the list as approved by HMRC is allowable where:
- employees pay this out of their earnings from an employment
- the activities of the body are directly relevant to the employment
The activities of a body are directly relevant to an employment where the performance of the duties of that employment:
- is directly affected by the knowledge concerned
- involves the exercise of the profession concerned
If an organisation is not on this list then the subscription cost is not a deductible expense for the Limited Company, the employer, or a claimable tax free expense by the employee.
You can check the full alphabetical list on HMRC's website.
A little PS
PCG membership is not listed in the HMRC's list of approved organisations.
Despite the cost of PCG Membership being, in our view, a very necessary business cost, it does not qualify as a tax free reimbursement of a necessary expense, nor is the expense "wholly and necessarily" for the business and so cannot be claimed against Corporation Tax.
The PCG have issued a guidance document on this subject that is available to members.