What is the income tax liability on scholarship income when received by an employee?

Scholarship income is one of many types of income which are exempt from income tax. The exemption to income tax is set out in section 776 of the Income Tax (Trading and Other Income) Act 2005 (see Practice Note: Exemptions and reliefs from income tax). However, if the sums in question are earnings from an office or employment, that exemption will not apply.

When considering the question of whether an individual is an employee (and therefore whether payments received are earnings from that office or employment), HMRC takes a similar approach to the employment tribunals in determining employment status. However, HMRC is not bound by decisions made by the employment tribunals and could reach different conclusions on the same facts. Despite the importance of the distinction between employment and self-employment