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Save tax when taking on trainees

9 Jul 2015

2 minute read

In recent years the Government has introduced various incentives for smaller businesses to take on apprentices and young employees. As of 6 April 2015 when you employ someone aged 20 or younger you no longer have to pay employers’ NICs on their wages (up to £42,385 per annum). But did you know that there is also a tax break available for trainees which can result in a saving for the employer?

A longstanding tax exemption exists for ‘scholarship income’. An HMRC statement of practice sets out the conditions but, in particular, relevant courses include sandwich courses as well as full time education and so are potentially relevant for work-related training. You can pay employees up to £15,480 free of tax and NICs for periods when they are undergoing training for their job at an educational establishment which is open to the public (such as a university or a technical college).

The exemption applies only if the following conditions are met:

  • the training course must be for a period of at least one year
  • the employee must attend the course for at least 20 weeks on average over the period of the course
  • the amounts paid in relation to the periods of training must not exceed £15,480 per year.

The aim of the exemption is to enable a trainee to pay for their lodging, subsistence and travelling costs out of income which has not been taxed. You may be able to reduce the wages you pay the trainee during the weeks they work for you, and increase the amount you pay them while they’re training, and thereby lower your overall cost through the tax and NIC savings.

It is important to be aware, however, that you must pay the trainee at a rate no less than the National Minimum Wage (NMW) during the weeks they are working for you.

National Minimum Wage rates can be found here.

Case study

Skinner Ltd is a small widget-making company that takes on Lizzie, age 20, who will be attending a sandwich course to help her be trained for her work. The company is considering paying her £15,000 per annum. If it pays her a wage of £3,000 during the 20 weeks she attends a course and £12,000 for the rest of the year, this gives Lizzie net income of £14,247 and, with employers’ NICs, it costs Skinner Ltd a total of £15,537. These figures are rates applying for 2015/16.

Alternatively, Skinner Ltd could pay Lizzie the National Minimum Wage at £6,566 (160 working days x 8 hours x £5.13), and increase the amount it pays her during her training periods to £7,681 – Lizzie would still end up with £14,247. The tax and NIC savings for the trainee and the reduction in employer NIC have allowed the employer to reduce the cost of employing her by £1,290.

In addition to the value a young employee can bring to your business, there are tax breaks available – call us on 01865 292200 if you would like more advice.


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