Employer sponsored payments for studying full-time
Finding out about payments made to you by your employer when you are an employee to support you in full-time attendance at university or technical college
Your employer may be able to make payments to you free of tax and NICs in certain circumstances when you are taking a full-time course, including a sandwich course, at university or technical college. Your employer would be making such payments to support you while you are studying full-time and not for when you are working at your job.
To qualify for the exemption from tax and NICs you must satisfy the following conditions:
- be receiving full-time instruction at a university, technical college or similar educational establishment which is generally open to the public and offers more than one course of practical or academic instruction; and
- be enrolled for at least one academic year; and
- attend the course for at least twenty weeks in that academic year or if the course is longer you must attend for at least an average of twenty weeks in an academic year.
If all of these conditions are met your employer may pay you up to £15,000 tax and NIC free for the 2005/06 academic year commencing on 1 September 2005 to cover the periods while you are studying. Such payments would cover lodging, subsistence and travelling allowances but tuition fees are excluded from the exemption.
The monetary value of the exemption will be reviewed annually.
The exemption only covers periods when you are away from work studying. If you return to work, during vacations or at weekends, for example, any payment of earnings made by your employer will have tax and NICs deducted in the normal way.
If your employer were to agree with you that you would receive more than £15,000, whether in one lump sum or instalments, the whole of the sum would be subject to tax and NICs and the exemption would not apply.
However, if, part way through the course, your employer increases the amount for some reason, perhaps because of a general pay rise for example, so that the total amount will exceed the £15,000 limit, the whole of that later payment would be taxable and NICs deductions would also be due. If you had already received one or more payments within the limit earlier in your course they would not be affected and you would not have to pay tax or NICs on these payments.
Some examples will help to explain
Example 1
Sue's employer pays for her to attend college. The course
starts in September 2005 and finishes at the end of the academic
year in June 2006. During this period she has vacations in
December and March when she works for her employer. She is
paid her normal monthly salary while working for her employer
during these vacations. Her income while working during her
vacations is subject to tax and Class1 NICs, because the exemption
under SP4/86 only applies to income when attending college.
Sue’s employer pays her £3,300 in September 2005
to cover the first term of the academic year and then pays
two further amounts of £3,300 in January 2006 and April
2006 to cover the second and third terms. These three amounts
of £3,300 are exempt from tax and NICs because they
meet all the conditions of SP 4/86 including being less than
the financial ceiling of £15,000.
Example 2
Sanjay’s employer pays for him to attend college. The course is a three year one; each academic year starts in September and finishes the following June. The course starts in September 2005 and finishes June 2008. During this period he has vacations in December, March, July and August when he works for his employer. He is paid his normal monthly salary while working for his employer during the vacations. His income while working during his vacations is subject to tax and Class1 NICs, because the exemption under SP4/86 only applies to income when attending college.
Sanjay’s employer pays him £2,500 in September 2005 to cover the first term of the first academic year and then pays two further amounts of £2,500 in January 2006 and April 2006 to cover the second and third terms. These three amounts of £2,500 are exempt from tax and NICs, because they meet all the conditions of SP 4/86 including being less than the financial ceiling of £15,000 for the 2005-06 academic year.
For this example the financial ceiling will remain at £15,000
for the three years. However, in normal circumstances the
financial ceiling will be subject to annual review.
Sanjay’s employer pays him £4,000 in September
2006 to cover the first term of the second academic year and
pays a further amount of £5,000 in January 2007 for
the second term. Then in April Sanjay is paid £6,000
for the final term. The three amounts of £4,000, £5,000
and £6,000 are exempt from tax and NICs, because they
meet all the conditions of SP 4/86 including being less than
the financial ceiling of £15,000 for the 2006-07 academic
year.
Sanjay’s employer pays him £6,000 in September
2007 to cover the first term of the final academic year and
pays a further amount of £6,000 in January 2008 for
the second term. Then in April Sanjay is paid £6,000
for the final term. The whole of this final £6,000 payment
is subject to tax and Class 1 NICs because it takes the total
payments received in the academic year over the £15,000
ceiling. However, the two previous payments of £6,000
in the 2007-08 academic year still remain exempt from tax
and NICs, as are the £7,500 and £15,000 paid to
Sanjay in the respective 2005-06 and 2006-07 academic years.
