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HMRC internal manual

Employment Income Manual

Employment income: scholarship income: payments taxable as employment income?

Section 776 IT(TOI)A 2005

Where income is received by an individual who holds an office or employment, before considering whether the exemption provided by Section 776 applies, it is necessary to consider whether and on what basis the amount received is chargeable to tax.

For an amount to be chargeable to tax as employment income it must be either general earnings or specific employment income from an office or employment (see EIM00510).

Earnings and Scholarship Income are mutually exclusive

The concepts of “earnings from an office or employment and “income from a scholarship” are mutually exclusive.  An amount paid as salary or wages is distinct from an amount awarded and paid to an individual under a scholarship.  For an explanation of the meaning of “scholarship” see EIM06230.

No office or employment

If there is no office or employment then the income cannot be taxable as employment income. In order to tax the payments as employment income you must be able to demonstrate that the income was received in respect of an office or employment and not under a contract of training. Detailed guidance on offices, employments and contracts of training can be found in the Employment Status Manual (see ESM2500 onwards).

If there is neither an office nor an employment then a charge may arise under the Savings and Investment or Trading Income rules. For further guidance on this see BIM65151.

Alternatively, the income may not be chargeable to tax.  For example, student maintenance grants made available by grant awarding bodies do not constitute taxable income. This is because the income is not chargeable under any part of the Taxes Acts, not because any such liability is exempted by Section 776.

Where the student comes from overseas the taxation position may be affected by a double taxation agreement. In such cases see DT1930 (link is external).

Only if there is a taxable source do we need to consider whether the income is exempt from tax under Section 776.  If that source is an office or employment then consider Statement of Practice 4/86 (see EIM06220).