EIM06236 - Employment income: scholarship income: scholarship and apprenticeship schemes at universities and colleges: periods commencing on and after 6 April 2005
Section 776 IT(TOI)A 2005 (Section 331 ICTA 1988) – Statement of Practice 4/86
See
EIM06235 for an overview of SP4/86.
On 6 April 2005 a rewritten version of SP4/86 came into
force. The guidance at EIM06235 continues to apply in general terms
but with the following changes:
- The rate of payment including lodging, subsistence and travelling allowances, but excluding any tuition fees payable by the employee to the university, etc is increased to £15, 000 a year or £1,250 monthly.
- The £15,000 monetary limit is the sole criterion, in respect of income, for deciding whether a student/employee is within the terms of the SP. Prior to 6 April 2005 there was an option – to look at the specified monetary amount and compare it to what grant awarding bodies were offering to students in similar circumstances. The higher of the two values was used as the limit. The link with grant awarding bodies has been withdrawn. The monetary limit provides a simple test of eligibility.
The full text of the Statement of Practice 4/86 as revised in April 2005 is reproduced below:
“Payments made by employers to employees when in full-time attendance at universities and technical colleges.
Scholarships, exhibitions, bursaries etc held by a person
receiving full-time instruction at university, technical college or
similar educational establishment are exempted from income tax by
Section 776 ITTOIA 2005 (previously Section 331 ICTA 1988).
This Statement of Practice sets out the circumstances when
payments made by an employer to an employee for periods of
attendance on a full-time course (including sandwich courses) can
be exempted from income tax. The following conditions and exclusion
apply.
Conditions
- The employer requires that the employee must be enrolled at the
educational establishment for at least one academic year and must
attend the course for at least twenty weeks in that academic year.
Or if the course is longer the employee must attend for at least
twenty weeks on average, in an academic year over the period of the
course.
- The educational establishments must be recognised universities,
technical colleges or similar educational establishments, which are
open to members of the public generally and offer more than one
course of practical or academic instruction. For example an
employer’s internal training school or one run by an
employer’s trade organisation will not satisfy the
educational establishment condition for the Statement of Practice.
- The payments, including lodging, subsistence and travelling allowances, but excluding any tuition fees payable by the employee to the university etc, do not exceed £15,000 for the 2005-06 academic year, which commences 1 September 2005.
Exclusion
- This exemption does not apply to payments of earnings made for any periods spent working for the employer during vacations or otherwise.
Do not accept that the trainee/student is in receipt of
scholarship income if the rate exceeds £15,000 p.a. You should
obtain copies of contracts between the trainee/student and the
employer/sponsor and an explanation of how the level of payments
has been calculated. It is likely that the amounts exceed what may
genuinely be described as scholarship income or educational
maintenance. In consequence, the payments are likely to be earnings
from the employment and liable to income tax. However, an increase
in the rate of payment over the qualifying limit, part way through
a course, will not affect the exemption applying to any payments
for the earlier part of the course.
[The current limit for the academic years ending on or before
31 August 2005 has applied from 6 April 1992 and is set at
£7,000 or an amount which a public awarding body such as a
Research Council, would have granted to a student with similar
personal circumstances. Inland Revenue Press Release, 18 November
1992 gives the details. Information for the 2005/06 academic year
commencing 1 September 2005 is in Inland Revenue Budget Note 32, 16
March 2005.”]
