Please can I have a tax free scholarship instead of a salary that is subject to tax and national insurance like everyone else?

That was the question a taxpayer recently posed to their employer, then to HMRC, and finally to the First Tier Tribunal (FTT).

The taxpayer had joined a training scheme paid for by her employer, during which time the employer continued to pay her and contribute to her pension.  It seems this wasn’t enough – the taxpayer also wanted to avoid their tax and NI on their income!

Apparently this person wasn’t the only one.  Partly fueled by HMRC past errors giving way to such claims, and partly fueled by social media nonsense, there have been many such claims in recent years.

In this case the taxpayer was an employee being paid a salary.  Their employer said so, HMRC said so and the FTT agreed.  Tax is due on a salary whether you are being trained by your employer or not.

The relief in question (ITTOIA 2005 s776) is actually designed for modest scholarships paid to students in full time education.  The main criteria for an employee to be paid tax free by an employer under this relief is that the employee must attend a recognised universities, technical colleges or similar, for at least twenty weeks in that academic year.

As with all of our tax tips and web pages this information is necessarily summarised and of a general nature.  If you would like detailed specific advice please contact us.