Should trainee delay cash be taxed? - graduate jobs

Confusion has arisen over whether to tax cash payments given to graduates to delay professional traineeships while companies sort out finances in the wake of the economic downturn.

Leading firms of lawyers and other businesses are offering young trainees who have already received state dates sums of money to delay coming into work for six months to a year.

The payments range from around £2,500 for six months to anything up to £10,000 for a year, as offered by leading law firm Norton Rose.

It has been reported that HM Revenue & Customs is itself confused over whether these payments are taxable. Experts have argued that income tax relates to earned income, whereas these payments fall outside that bracket as the trainees have yet to start employment.

Mike Warburton, head of tax at Grant Thornton, said: "We are in unknown territory here, because we have never seen payments of this kind before. But we must be careful because this is an awful time for these young people, and could have a demoralising impact on their attitude to work for the rest of their lives. I firmly believe there are plenty of grounds to suspect that these payments should not be taxed."