What are ‘employer-sponsored courses’ and how does this affect my tax?
Normally when your employer sends you on training courses, you continue to pay tax and National Insurance contributions (NIC) on your wages. This would be the case if, for example, you are studying towards a qualification and working at the same time, or perhaps going on ‘day release’ or short-term courses.
But a special rule called Statement of Practice 4/86 may apply where you are an employee and you are released for study, described perhaps as a sandwich course at a university or college.
Under these rules, your employer may be able to make payments to you free of tax and NICs. Your employer would be making such payments to support you while you are studying full-time, not for when you are working at your job.
To qualify for the exemption from tax and NIC you must:
- be studying full-time at a university, technical college or similar educational establishment, which is generally open to the public and offers more than one course (so an employer's in-house training would not qualify);
- be enrolled for at least one academic year;
- attend the course for at least 20 weeks in that academic year or, if the course is longer, you must attend for at least an average of 20 weeks in an academic year.
If all of these conditions are met and your study continues, your employer may pay you up to £15,480 tax and NIC free for the 2020/21 academic year, that is, from 1 September 2020.
The £15,480 total includes accommodation, living and travel costs, but tuition fees do not count towards the limit. Tuition fees are separately exempt as long as the course is ‘work-related training’, which means it will help you do your job better or is for a qualification relevant to your job.
The exemption only covers periods when you are away from work studying. However, if you go back to work, for example, during vacations, your earnings for those periods will be taxed and have NIC deducted as usual.
You also need to be careful because the exemption may be lost entirely if your employer paid you at a rate higher than £15,480 for the year. If the rate changes during the year to a rate higher than £15,480, then sums paid prior to the change that were within the limit should still count towards the exemption, but all amounts paid once the rate was increased would be liable to both income tax and NIC.
If you come under this exemption, your entitlement to state benefits could be affected because while you are not paying NIC, you are not building up a contribution record. Our What is National Insurance? page provides more information.