Tax and PhD students

jennifernil

Are there any circumstances in which a PhD student would be liable to pay tax on their PhD funding?

My daughter started a PhD in October, as well as the basic funding she receives additional funding as the research is being sponsored. She was told the payments were tax free. She has no other income.

Due to negotiations between the Uni and the sponsor, contracts were not signed until early December, so she received 3 months of payments in one go. On 1st January she received her payment for this month. All the payments seem to be about 20% less than she was supposed to get.

So far she has received no "paperwork" relating to the payments, and the Uni offices are not replying to e-mails or answering the phone, they are probably still on holiday.

I cannot think that the "missing" money can be for anything other than tax. Is it correct that she has been taxed on this money? None of the other PhD students she knows have had tax deducted.

jimmo

This can be quite complicated but your first port of call will have to be whoever actually makes the payments to her to check whether tax is being deducted and , if so, why?
The following link takes you to the relevant HMRC manual. Scroll down to Scholarship Income and start reading.
Sorry, can’t be any more help at this point.
http://www.hmrc.gov.uk/manuals/eimanual/EIM04700.htm

jennifernil

Thank you very much! I have looked at the manuals and the various sections and can see that because she is receiving more than the £15000 limit mentioned, she has to prove that this is not employment income. Which it is not as she is not/does not have to work for the sponsor, and has no automatic job later with them.

She has to provide copies of her contract(s) with the Uni and the sponsor, and "an explanation of how the level of payments has been calculated"

Contracts she can provide, but I am not sure about the "explanation".
Any suggestions on that point?

Hoddie_2

I'd recommend you contact HMRC and request technical assistance. You might even need to speak to an inspector.

DrFluffy

It depends on the type of stipend she has. Some are liable to tax - the "fellowships" are the ones that particulally spring to mind...

jennifernil

I don't think it is a fellowship, but I really don't know.

We are in Scotland. She was doing a 5 year Masters degree (software engineering), but towards the end of 4th year her professor told her about this sponsored PhD that the Uni were able to offer (only one place) and suggested she apply as it fitted well with the work she had done in her 4th year project. It is sponsored by a well known company, and the total funding is around £21k per annum.

She applied and got it so graduated BSc at the end of 4th year, and is now doing the PhD. The financial situation was of course part of the decision, and this was based on the info given by the Uni that the stipend was tax free. She already had a definate job offer for September 2008 starting on £27k with increases every 6 months, even without looking around. So she calculated that 3 years on £21k tax free, compared to 1 year as an undergraduate and 2 years on £27-£30k meant that she would come out slightly ahead financially, and of course with a better qualification.

Now, if she has to pay tax, the financial planning has been shot to bits. Plus she will have to pay tax on her savings, and she was hoping to save a lot.

We shall see what the Uni finance office has to say on Monday and take it from there.

DrFluffy

The fact it's coming froma company and not the Government might be the problem. When I did my doctorate, I had an MRC stipend, which was tax free. My friend was sponsored by a pharmaceutical company and had to pay tax...

jennifernil

I see.

As far as I am aware, only the top up of about £8k is coming from the company, the rest is from the normal funding.

Can you tell I don't know much about all this!?

Other than receiving the sponsorship she has no connection with this company.

jimmo

As Hoddie has suggested, you may well have to contact HMRC but, at this stage, the problem is which office?
The way I read your posts is that the money arises from more than one source but is actually being paid to her by the university (acting as a paying agent for those providing the funds) and you will need to contact the Tax Office that deals with the university‘s PAYE.
If the university is in Scotland that will be Centre 1 in East Kilbride.
However, I really feel that you will be very lucky if you get through to an Inspector who happens to be familiar with the particular scheme that your daughter is on.
If you phone HMRC now I feel there is a real danger that you will be passed from pillar to post because no-one will know how to deal with your enquiry. Not too good for your blood pressure.
Frustrating as it may be I really think the first point of contact needs to be the university or whoever is paying your daughter the money. They should be able to explain what is happening and why. If not, they really should be able to give you a tax office and reference which will help.
Please remember that if the university is paying your daughter and deducting tax incorrectly then HMRC will not repay the tax deducted. They will instruct the university to do that.
I can’t see you getting any results until the university is back up and running but even now you are only assuming that tax is being deducted. It could be as simple as that you are expecting her to be paid in equal instalments over the 9/10 months of the academic year and the payer is paying in 12 monthly instalments.

jennifernil

I am hoping she will get some info from the finance office when it opens on Monday as to what is going on. The only info she has been given so far is the annual amount and the fact that it is paid monthly in advance, so each payment should be 1/12 . Her "academic year" is 12 months with only a few weeks off.

If the deduction is for tax I will get her to get a reference number and whatever other information is available.

I reckon they should have asked her if she had a P45 if they were to deduct tax, which she does have as she had a summer job. They did ask for her NI number.

jimmo........is there a particular department at HMRC that deals with scolarship income? I am presuming the Uni will deal with Centre 1, and I already know my way around there!!! It would be good if they had someone there familiar with this sort of thing.

If it takes a while to sort out, and IF she is being taxed incorrectly, and we go into the next tax year will she still get it back from the Uni, or will she have to submit a reclaim form and get it repaid by HMRC?