Being a student is not easy. They have to study hard, spend countless hours in the library, have meetings with supervisors, write essays, and do so much more with the limited amount of time they have. Financing their education is something that all students have to worry about. There are many ways of getting money to fund their education, with scholarships being the most prestigious method. However, the tax situation regarding scholarships is not usually clear to those who receive them. Are scholarships taxable? Here is a primer on the situation.
According to HM Revenue & Customs’ website, most scholarships and research awards are not taxed. They also mention that grants, student loans and prizes won by students for their academic excellence are not taxed. The keyword here is “most”, leaving a loophole through which some scholarships are definitely taxable.
First off are research studentships – these are rewarded to students undergoing training in various research methods. They are also awarded to students taking postgraduate courses. These awards are given out by the Science and Engineering Research Council. HMRC notes that they are not taxable as employment income.
Research fellowships, on the other hand, are taxed under the Trading Income rules. These awards are usually given to research workers that enable them to thoroughly research a particular topic. Most of these workers fall under contracts of employment, which means that this ‘income’ is taxed.
Grants, meanwhile, are excused from the tax net. These are given to researchers to enable them to employ assistants and purchase special equipment, among other things. Although it is not taxed in the hands of the award recipients, if he or she employs an assistant then his or her remuneration is taxed the normal way. Similarly, allowances made through scholarships, such as enabling travel and accommodation, are not taxed. They are treated as tax-free allowances since they enable training and are not regarded as contracts of employment.
As one can see, most scholarships are not taxable. If the award given, however, falls under a contract of employment then it is definitely considered taxable by the HMRC. Students need to take their unique situation into consideration and ask for details if they receive scholarships.