Policy paper

Exemption for bursary payments to care leavers

Published 28 April 2023

Who is likely to be affected

Individuals aged between 16 and 24 who are in or who have left care and started an apprenticeship in England on or after 1 August 2023, and who receive the £3,000 bursary introduced by the Education and Skills Funding Agency (ESFA).

General description of the measure

This measure allows for the statutory Income Tax and National Insurance contributions (NICs) exemptions qualifying conditions to reflect the £3,000 bursary paid to care leavers aged between 16 and 24 who enter an apprenticeship.

Policy objective

From 1 August 2023, the ESFA offers a £3,000 bursary to care leavers aged 16 to 24 who undertake an apprenticeship. Individuals are generally liable to pay Income Tax, and individuals and employers are both liable to pay Class 1 NICs, on payments that derive from an employment.

This includes individuals who are employed as apprentices, and so this exemption ensures those receiving this bursary receive the full benefit of the bursary.

Young people leaving care can experience additional barriers to getting an apprenticeship. The care leavers’ apprenticeship bursary helps to cover some of the additional costs incurred in the first year of their apprenticeship as learners transition into the workplace for their practical studies.

The Income Tax exemption will ensure that the tax treatment of a bursary to care leavers who undertake an apprenticeship is the same as the tax treatment of a bursary to care leavers who enter higher education.

The payments will also not be subject to NICs. The NICs treatment of these payments will automatically follow the tax exemption.

Background to the measure

This measure was announced on 3 February 2023, as part of the Children’s Social Care Reform.

A guidance update was published by the Department of Education:

Apprenticeships bursary for care leavers

Detailed proposal

Operative date

The measure will have effect from the date of 1 August 2023, once regulations have been laid to specify the updated details of the bursary payment.

Current law

Employees are subject to Income Tax on the full amount of cash received as earnings from an employment under Part 2 of the Income Tax (Earnings and Pensions) Act 2003.

Class 1 NICs are also payable on those earnings under section 3 of the Social Security Contributions and Benefits Act (SSCBA) 1992.

Legislation in Chapter 4 of Part 4 of Income Tax Earnings and Pensions Act 2003, defines that no liability to Income Tax arises in respect of a care leaver’s apprenticeship bursary payment. This is defined as a payment which is payable out of the public revenue to a care leaver in connection with the person’s employment as an apprentice in England. Further details of conditions to be met are specified in Regulations 2022/922.

Proposed revisions

Amended regulations will be laid on 28 April 2023 to specify the details of the new rate of bursary payment and to qualify for an Income Tax exemption and the Class 1 NICs disregard in the Social Security (Contributions) Regulations 2001.

Summary of impacts

Exchequer impact (£ million)

2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029
negligible	negligible	negligible	negligible	negligible	negligible

This measure is expected to have a negligible impact on the Exchequer.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This is a targeted measure which will only affect individuals aged 16 to 24 who are leaving care and beginning an apprenticeship, who will receive an increase in their payments to cover living costs.

Individuals will not need to do anything differently to what they currently do now, as any changes in bursary increase and tax exemption will be undertaken by ESFA and HMRC.

This measure is not expected to impact on family formation, stability or breakdown. However, it will have a positive impact on those who are leaving care, recognising the extra barriers they may face in the transition to the world of work.

Customer experience is expected to remain broadly the same following these changes to the bursary payments as it does not alter how individuals interact with HMRC.

Equalities impacts

This measure is likely to have a positive impact on individuals aged between 16 and 24 who have left care and who received an apprenticeship bursary payment.

It is not anticipated that there will be impacts on any other groups with protected characteristics.

Impact on business including civil society organisations

This measure will have no impact on businesses or civil society organisations. It only affects individuals, aged between 16 and 24, who are care leavers starting an apprenticeship.

Operational impact (£ million) (HMRC or other)

There are no operational impacts as a result of implementing this measure.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

HMRC does not expect to evaluate the measure because it is led and funded by the Department for Education.

HMRC 5 Evaluation Principles therefore do not apply.

Further advice

If you have any questions about this change, contact the Employment Income Team by email: [email protected].

Declaration

Victoria Atkins MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.