Claiming expenses – how professional memberships and subscriptions are treated

How are subscriptions to professional and trade organisations treated for tax purposes? And what determines whether or not your membership of a particular organisation is tax-deductible?

Expenses basics

As with all types of business expenses, you can only claim for costs incurred wholly and exclusively while carrying out your business or trade.

If you claim for anything which is for your personal use, or joint use (i.e. it has a ‘duality of purpose’), you will have to pay extra personal tax on the value of the expense claim. Your company will incur an Employers’ National Insurance liability on the benefit.

Professional memberships and trade subscriptions

If you are a contractor, chances are that you belong to some kind of trade organisation, society, or group related to your area of business or expertise. This includes the British Computing Society (BCS), as an example.

Your limited company may be able to pay the cost of membership, with no tax implications if your membership is providing a benefit for the business (and you would not otherwise have joined as an individual).

According to HMRC EIM32900, the costs of membership are tax-deductible:

if the activities of the body are of direct benefit to, or concern the profession practised in, the performance of the duties of the employment.

There is one important caveat to this rule.

Subscription fees are tax-deductible only if the organisation appears on HMRC’s approved ‘List 3’ – Approved professional organisations and learned societies.

You can browse the list here.

Two further things worth noting

• On the rare off-chance that it is relevant to you, life memberships are not eligible for tax relief.
• If your employer has paid for your trade association membership, you cannot subsequently claim tax relief.

What about my IPSE membership?

There have been several instances where professional associations have not been approved by HMRC; the most recent being the Professional Golfers’ Association (PGA).

In a recent case, the First Tier Tribunal decided that the main purpose of PGA membership was to increase members’ earning potential, rather than improve their golfing ability.

As a result, it upheld HMRC’s decision to disallow members to claim tax relief on their subscriptions.

Interestingly, the leading freelancers’ trade association, IPSE (formerly PCG) is not on the HMRC-approved list.

As most of our visitors are contractors, we asked the organisation why this is the case:

Chris Bryce, IPSE’s Chief Executive, told us that your limited company can pay for the IPSE membership fee. However, this cost is not an allowable deductible expense against profits and therefore can’t be offset against Corporation Tax.

The reason IPSE fees aren’t deductible is that HMRC rules state that only recognised professional bodies fees are deductible from corporation tax. IPSE could become recognised but if we did that we would have to agree to give HMRC our membership list every year. We won’t do that.

How does an organisation apply to join List 3?

Organisations should submit Form 356 to HMRC to seek HMRC approval to be added to the List.

To be eligible, the main purpose of the organisation should be to:

• share or advance professional knowledge
• maintain or improve professional conduct and competence
• protect members from claims made against them while doing their job

Additionally, the organisation should not be profit-making not limited to a local area.

Further details

For more technical details on the tax treatment of professional subscriptions, refer to HMRC EIM32915.

If you have any questions about expenses in general, make sure you discuss them with your accountant or umbrella company provider.