Scholarships

By Tolley in association with Philip Rutherford
Employment_tax_img7

The following Employment Tax guidance note by Tolley in association with Philip Rutherford provides comprehensive and up to date tax information covering:

  • Scholarships
  • Introduction
  • Scholarships
  • Reporting requirements

Introduction

A number of employers make educational awards to individuals. For the individuals receiving the award, there is an exemption from tax in most instances. However, depending on the relationship between the individual and the employer, there may be a taxable benefit arising.

The main purpose of the legislation is to ensure that employers are not providing a benefit to employees by meeting the employee’s child’s education costs. If these amounts had been provided by way of cash to the employer then it would have been taxable, therefore meeting their child’s school costs on their behalf should equally be taxable.

ITEPA 2003, ss 211–215
Scholarships

There are a number of scenarios to understand when looking at the taxable status of the payments.

HMRC’s guidance on scholarship income is at EIM06205.

The scholarship holder is a third party to the employer

There is a general exemption from income tax for a scholarship under ITTOIA 2005, s 776 if the person receiving the scholarship is in full time education.

There are specific requirements for the nature of the institution in which the education takes place. Typically the education needs to take place in a school, college, university or other recognisable form of educational establishment. If the scholarship relates to a facility run by the employer providing the scholarship then the amount is likely to be regarded as earnings.

HMRC’s interpretation o

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