Income Tax and National Insurance exemptions for bursary payments to care leavers
Published 11 March 2020
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This publication is available at https://www.gov.uk/government/publications/income-tax-and-national-insurance-exemptions-for-bursary-payments-to-care-leavers/income-tax-and-national-insurance-exemptions-for-bursary-payments-to-care-leavers
Who is likely to be affected
Individuals aged between 16 and 24 who are in or who have left care and started an apprenticeship in England, and who receive the £1,000 bursary introduced by the Education and Skills Funding Agency (ESFA).
General description of the measure
This measure creates statutory Income Tax and National Insurance contributions (NICs) exemptions for the one-off £1,000 bursary paid to care leavers aged between 16 and 24 who enter an apprenticeship.
Policy objective
ESFA offers a £1,000 bursary to care leavers aged 16 to 24 who undertake an apprenticeship. Individuals are generally liable to pay Income Tax, and individuals and employers are both liable to pay class 1 NICs, on payments that derive from an employment. This includes individuals who are employed as apprentices, and so this exemption ensures those receiving this bursary receive the full benefit of the bursary.
Young people leaving care can experience additional barriers to getting an apprenticeship. The care leavers’ apprenticeship bursary helps to cover some of the additional costs incurred in the first year of their apprenticeship as learners transition into the workplace for their practical studies.
The Income Tax exemption will ensure that the tax treatment of a bursary to care leavers who undertake an apprenticeship is the same as the tax treatment of a bursary to care leavers who enter higher education.
The payments will also not be subject to NICs. A Class 1 NICs disregard will be introduced through regulations after Royal Assent to Finance Bill 2020-21.
Background to the measure
This measure was announced at Budget 2020.
Detailed proposal
Operative date
The measure will have effect after the date of Royal Assent to Finance Bill 2020, once regulations have been laid to specify the details of the bursary payment. For payments that have already been made HMRC will exercise its collection and management discretion and will not collect tax and NICs due on any retrospective amounts.
Current law
Employees are subject to income tax on the full amount of cash received as earnings from an employment under Part 2 of the Income Tax (Earnings and Pensions) Act 2003.
Class 1 NICs are also payable on those earnings under Section 3 of the Social Security Contributions and Benefits Act (SSCBA) 1992.
Proposed revisions
Legislation in Finance Bill 2020-21 will introduce a new section into Chapter 4 of Part 4 of Income Tax Earnings and Pensions Act 2003.
The new legislation defines that no liability to Income Tax arises in respect of a care leaver’s apprenticeship bursary payment. This is defined as a payment which is payable out of the public revenue to a care leaver in connection with the person’s employment as an apprentice in England. Further details of conditions to be met will be specified in Regulations.
Regulations will be laid at a further date after Royal Assent to Finance Bill 2020-21 to specify the details of the bursary payment and provide for the Class 1 NICs disregard in the Social Security (Contributions) Regulations 2001.
Summary of impacts
Exchequer impact (£ million)
| 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 |
|---|---|---|---|---|---|
| - | negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure impacts individuals aged between 16 and 24 and who are in or who have left care and are starting an apprenticeship. Customer experience is expected to stay broadly the same as affected individuals will not have to do anything differently. There is expected to be no impact on family formation, stability or breakdown.
Equalities impacts
This measure is likely to have a positive impact on individuals aged between 16 and 24 who have left care and who received an apprenticeship bursary payment. It is not anticipated that there will be impacts on any other groups with protected characteristics.
Impact on business including civil society organisations
This measure will have no impact on businesses or civil society organisations. It only affects individuals, aged between 16 and 24, who are care leavers starting an apprenticeship.
Operational impact (£ million) (HMRC or other)
There are no operational impacts as a result of implementing this measure.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through information collected by ESFA and kept under review through regular communication with affected taxpayer groups.
Further advice
If you have any questions about this change, contact the Employment Income Team by email: employmentincome.policy@hmrc.gov.uk.