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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: miscellaneous awards: awards made by Government departments or Government sponsored bodies

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

The more common awards by Government Departments or Government-sponsored bodies, and their taxation treatment, are as follows:

Science and Engineering Research Council

  • Research studentships and advanced course studentships awarded for the maintenance of students undergoing training in research methods or taking post-graduate courses are not taxable as employment income.
  • Research fellowships awarded to young research workers who have completed their normal course of post-graduate training to enable them to pursue a particular research topic may be chargeable to tax under the Trading Income rules (see EIM06210 and BIM65151). But if, exceptionally, a contract of employment exists the payments will be taxable as employment income.
  • Grants for the development of special researchers are made to enable investigators to employ assistants and to purchase special equipment. The grants are not taxable income in the hands of the investigator to whom they are paid. But if the investigator uses the grant to employ a research assistant the remuneration that the assistant receives is taxed in the normal way. The university department etc to which the investigator is attached normally acts for him in claiming the grant and paying the assistants.

Government training schemes

Grants or allowances, plus in some cases travel and accommodation allowances, paid to participants in these schemes are not normally regarded as income for tax purposes. They are treated as tax-free maintenance allowances on the basis that the participants are engaged under contracts of training, not contracts of employment. But, if the arrangements are such that contracts of employment exist, the payments made will be taxable earnings,which should be subjected to PAYE in the usual way. For example, payments to disabled persons undergoing training in sheltered workshops are treated as wages and subject to income tax.

It will normally be self-evident whether participants in these schemes have employee or trainee status.

Employees will generally have a direct contract with the person to whom they provide their services.

Trainees will generally have a contract with the scheme organiser that may involve work experience or training involving a work provider. It will usually be clear from the contract and the surrounding circumstances that the primary purpose is to train the participant though incidental benefit such as some productive work for the work provider may result.