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HMRC internal manual

Employment Income Manual

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Employment income: scholarship income: meaning of scholarship

Section 776(3) IT(TOI)A 2005 (Section 331(2) ICTA 1988)

Section 776 (Section 331) provides that income from a scholarship shall be exempt from income tax (see EIM06205). Section 776(3) (Section 331(2)) expands the meaning of scholarship to include an exhibition, bursary or any other similar educational endowment. As there is no other statutory definition the ordinary meaning ofthese terms has to be observed.

This means that although essentially a scholarship is an award, usually made on merit, which does no more than support a student during a period of study, in practice we have to interpret scholarship, etc. fairly broadly. An Inspector should deal with any cases of doubt or dispute.

The following do not normally qualify as scholarships:

  • loans to employees undergoing educational courses, see EIM01490 and Clayton v Gothorp (47TC168)
  • payments to students under deeds of covenant. These payments typically are not linked to a course of education, nor are they part of a student grant. In Gibbs v Randall (53TC513) a parent covenanted to pay an amount to his student son for a period of time as part of his parental contribution towards a local education authority grant. He claimed that the payments, being part of his parental contribution to the student grant, were payments to which his son was entitled as “the holder of … an educational endowment” and therefore should not be taken into account in calculating his son’s income. The High Court held that the covenant imposed no obligation as to the use to which the money should be put when received and was not linked to the receipt of an educational grant or to continuance of the son’s education. The payments under the covenant were therefore not income to which the son was entitled as holder of an educational endowment.

As regards fellowships, see EIM06245.