This section looks briefly at how you are taxed if you are receiving training from an employer but bear in mind this is not the same as being an apprentice - you are basically seeing how the job is done.

We look at three areas:

Employee or trainee?

Government training schemes

Training & Working tax credit

Employee or trainee?

• In order to tax the wages you receive as employment income HMRC will need to be satisfied that the income was received in respect of an employment under what is called a contract of service and not under a contract of training.



• Where you are engaged under a contract of training anything you receive under that contract is not likely to be chargeable to income tax employment income or subject to Class 1 National Insurance Contributions (NICs). This is because you are either not required to provide any service to the employer or any service you provide is minor.




• There is no set definition of what is meant by a contract of training although in a case brought before the courts it was decided that a trainee is as follows:

  ....They are giving minor assistance in the work. They are not being taught a trade such as would make them an "apprentice". They are not doing work for the employer so as to be under a "contract of service". They are neither apprentices nor servants......He or she is in a special category for training - to be trained both generally and to see how the job is done...



• In an actual case a woman was sponsored by the Home Office for a social work course at a university with a view to her training and qualifying as a probation officer. It was decided she did not have a contract of service. The woman performed no duties as an employee and the object of the contract was to further her education and training.



• Where in return for payment you undertake to follow a course of study or learning with no service (or the provision of only minor assistance), the contract is not a contract of service at all.



• Where you are sent on a training course then the nature of your employment does not change and any income received will continue to be taxed under PAYE as employment income and be subject to Class 1 NICs.



• However a special rule called Statement of Practice 4/86 may apply where you are an employee and you are released for a sandwich course at a university or college.



• Each case will be considered by HMRC on its own merits and they may want to see the written contract before giving their decision.



• You may be engaged under training contracts or traineeships but you may still be an employee. For example, trainee solicitors and accountants may not only have training contracts with a principal or a firm but also contracts of service with the firm.



• Additionally, where the contract involves a mixture of training and service and amounts to a contract of apprenticeship then a tax and NICs liability may arise.



• Have a look at a very useful flowchart to help you decide if your contract is one for training or services.

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Government training schemes

• Grants or allowances, plus in some cases travel and accommodation allowances, paid to you if you are taking part in these schemes are not normally regarded as income for tax purposes. They are treated as tax-free maintenance allowances on the basis that you are engaged under a contract of training, not a contract of employment.



• But, if the arrangements are such that a contract of employment exist, the payments made will be taxable earnings, which will be taxed under 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 should normally be self-evident when you are taking part in these schemes whether you have employee or trainee status:

  • If you are an employee you will generally have a direct contract with the person to whom you provide your 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 your contract and the surrounding circumstances that the primary purpose is to train you though incidental benefit such as some productive work for your work provider may result.

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I am on a training scheme, will I be eligible for WTC?

• Have a look here at the information available on this point on the HMRC website.



• Basically what it says is that if you are a trainee, you are not classed as being in paid work for tax credits purposes, even if a training allowance is paid.

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