Trailblazer employers will not have to shell out tax on cash rewards for taking on apprentices, it has been confirmed.

The Skills Funding Agency (SFA), in its Trailblazer Apprenticeships Funding Rules 2014 to 2015, said it “considered” the payments exempt from VAT, but recommended getting Her Majesty’s Revenue and Customs (HMRC) approval anyway.

The document said: “While providers and employers should always seek their own VAT advice, we consider that incentive payments are beyond the scope of VAT and therefore VAT should not be charged on them.”

Employers are eligible to claim incentive payments when they contribute towards all or part of externally-purchased training or assessment if the apprentice is aged 16 to 18 or the business has fewer than 50 employees. An incentive payment is also available when an apprentice completes their programme.

However, HMRC ended the uncertainty over the payments.

“Grants and similar payments by government agencies are outside the scope of VAT because no service is supplied to the government agency in return,” he said.

“For VAT to become chargeable, there must be a direct link between a payment made and a service supplied in return for it.”

He added: “The supply of vocational training is exempt if funded by the SFA.”