When are scholarships taxable as benefits?

The holder of a scholarship is exempt from a charge to Income Tax on income from a scholarship when receiving full-time education at a university, college, school or other educational establishment.

Please note, that the provision of a scholarship to a member of the family or household (usually a son or daughter) of a director or employee by reason of the employment of that director or employee, will give rise to a taxable benefit. Fortuitous awards of scholarships are the only exception to this rule.

We have noted below the principal conditions and one exclusion, which together explain the basic position when a scholarship can be exempt from Income Tax.

Conditions

  1. The employer must require that the employee 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.
  2. The educational establishment must be a recognised university, technical college, or similar educational establishment and which is open to members of the public generally and offers 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 this relief.
  3. The payments, including lodging, subsistence and travelling allowances but excluding any tuition fees payable by the employee to the university etc, should not exceed £15,480.

Exclusion

  • This exemption does not apply to payments of earnings made for any periods spent working for the employer during vacations or otherwise. These payments would be taxable as earnings in the normal way.
Posted in HMRC notices

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