EIM06237 - Employment income: scholarship income: scholarship and apprenticeship schemes at universities and colleges: academic years commencing on and after 1 September 2007

Section 776 IT(TOI)A 2005 (Section 331 ICTA 1988) – Statement of Practice 4/86

See EIM06235 and EIM06236 for an overview of SP4/86.

On 1 September 2007 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 £15,480 a year or £1,290 monthly.
• The revised text makes it clear that awards in excess of £15,480 p.a. will be reviewed in order to determine whether the character of payments is earnings or scholarship income.

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 (revised August 2007)

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 £15,480 for the 2007-08 academic year, which commences 1 September 2007.

Exclusion

This exemption does not apply to payments of earnings made for any periods spent working for the employer during vacations or otherwise.

If the rate exceeds £15,480 HMRC will look at the arrangements in detail. This is because the level of payment exceeds what might reasonably be described as a scholarship or training allowance. 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 2006 and 31 August 2007 has applied from 1 September 2005 and is set at £15,000. For academic years ending on or before 31 August 2005 was 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.]”