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Scholarship for employee's family member

This guide explains your tax and National Insurance contributions (NICs) obligations if you provide a scholarship to an employee's family member.

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Scholarships provided to an employee's family member

Definitions or restrictions

You provide or arrange a scholarship for an employee's child, or for another member of their family or household.

A scholarship is an award, usually made on merit, which supports a student during a period of study. For tax and NICs purposes, the term 'scholarship':

  • also covers exhibitions, bursaries and similar educational endowments
  • doesn't normally cover loans made to a student, or payments made under a deed of covenant

The rules in this section assume that a direct connection exists between the employee's employment with you and your provision of a scholarship to their family member - that is, in general terms the scholarship wouldn't have been awarded if your employee didn't work for you. Different rules apply if there's no such direct connection - see the next section on 'fortuitous' awards.

What to report, what to pay

For employees earning at a rate of less than £8,500 per year, you have:

  • no reporting requirements
  • no tax or NICs to pay

For company directors or employees earning at a rate of £8,500 or more per year:

  • report on form P11D - section M
  • pay Class 1A NICs on the value of the benefit

Work out the value to use

The value to use is the cost to you of providing the scholarship.

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If the connection with employment is 'fortuitous'

Definitions or restrictions

You provide or arrange a scholarship for an employee's child, or for another member of their family or household. The connection between the employee's employment with you and your provision of a scholarship to their family member is 'fortuitous'.

A scholarship is considered fortuitous in this way if all the following conditions apply during the tax year:

  • Your employee's employment with you isn't a reason for the award of the scholarship - that is, in general terms, the scholarship would still have been awarded even if your employee didn't work for you.
  • The recipient of the scholarship is in full-time education.
  • The scholarship is provided from a trust fund or under a scheme.
  • No more than 25 per cent (by value) of the payments made by the fund or scheme are for scholarships that are linked to employment. (For example, if 15 per cent of the fund's payments relate to family members of your employees and 15 per cent relate to family members of another employer's employees, then 30 per cent of the total value of the scholarships is linked to employment - which means that the scholarships don't count as fortuitous.)

What to report, what to pay

You have:

  • no reporting requirements
  • no tax or NICs to pay

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Understanding the £8,500 threshold

To check what's included in the £8,500 threshold for P11D reporting purposes, follow the link below.

End-of-year forms at a glance

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Technical guidance

EIM30001: Scholarships - general

EIM30004: Fortuitous scholarship awards

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