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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Employment income: scholarship income: rates of payment under Statement of Practice 4/1986: examples

Statement of Practice 4/86

Example 1

Sue’s employer pays for her to attend college. The course starts in September 2012 and finishes at the end of the academic year in June 2013. During this period she has vacations in December and March when she works for her employer. She is paid her normal monthly salary while working for her employer during these vacations. Her income while working during her vacations is subject to tax and Class1 NICs, because the exemption under SP4/86 only applies to income when attending college.

Sue’s employer pays her £3,300 in September 2012 to cover the first term of the academic year and then pays two further amounts of £3,300 in January 2013 and April 2013 to cover the second and third terms. These three amounts of £3,300 are exempt from tax and NICs because they meet all the conditions of SP 4/86 including being less than the financial ceiling of £15,480.

Example 2

Sanjay’s employer pays for him to attend college. The course is a three year one; each academic year starts in September and finishes the following June. The course starts in September 2012 and finishes June 2015. During this period he has vacations in December, March, July and August when he works for his employer. He is paid his normal monthly salary while working for his employer during the vacations. His income while working during his vacations is subject to tax and Class 1 NICs, because the exemption under SP4/86 only applies to income when attending college.

For the purpose of this example the financial ceiling will remain at £15,480 for each of the three academic years, however, the financial ceiling is normally subject to annual review and so might change.

At the start of the course it is envisaged that the cost of Sanjay’s attendance will not exceed £15480 for each of the three academic years.

Sanjay’s employer pays him £4,500 in September 2012 to cover the first term of the first academic year and then pays two further amounts of £4,500 in January 2013 and April 2013 to cover the second and third terms. These three amounts are exempt from tax and NICs, because they meet all the conditions of SP 4/86 including being less than the financial ceiling of £15,480 for the 2012-13 academic year.

Sanjay’s employer pays him £5,000 in September 2013 to cover the first term of the second academic year and pays a further amount of £5,000 in January 2014 for the second term. Then in April Sanjay is paid £5,400 for the final term. The three amounts of are exempt from tax and NICs, because they meet all the conditions of SP 4/86 including being less than the financial ceiling of £15,480 for the 2013-14 academic year.

Sanjay’s employer pays him £5,000 in September 2014 to cover the first term of the final academic year and pays a further amount of £5,000 in January 2015 for the second term. In April 2015 the cost of his attendance is unexpectedly increased due to extra modules being added and so Sanjay is paid £6,000 for the final term. The whole of this final £6,000 payment is subject to tax and Class 1 NICs because it takes the total payments received in the academic year over the £15,480 ceiling. However, the two previous payments of £5,000 in the 2014-15 academic year still remain exempt from tax and NICs, as are the amounts paid to Sanjay in the respective 2012-13 and 2013-14 academic years.