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HMRC internal manual

Employment Income Manual

Employment income: examination grants to employees

Sections 62 and 203 ITEPA 2003

Following the decision in Ball v Johnson (47TC155) examination awards paid by employers to employees for passing a recognised examination are not taxable as earnings within Section 62 ITEPA 2003 (see EIM00515) where all the following conditions are satisfied:

  • the award is made at the discretion of the employer (that is, the employer is under no legal obligation to make the award)
  • it is not part of the employee’s duties to sit and pass the examination (for example, dismissal does not automatically follow failure)
  • the award takes the form of a lump sum paid once and for all
  • the award is reasonable in amount and there is no evidence to suggest that it represents disguised remuneration
  • (For 2015/16 and earlier only) the employee is in lower paid employment (see EIM20100).

For directors and employees who are not in lower paid employment the award is treated as earnings by Section 203 ITEPA 2003. If the award is in the form of cash, PAYE should be operated at the time of payment.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Special increments of salary granted on passing examinations are chargeable in the ordinary way.