Tax Guide for Students
We have discovered that many students are unfairly paying too much tax because they are not up to speed with current income tax regulations.
Although most students do not need to pay for our tax expertise, we do believe in accessibility of information and don’t think that anyone should be paying more than their fair share of tax.
In our free student tax guide we lay out the basics that you need to know in order to monitor your own financial situation from the start of your life as a student.
How many students does this affect?
In August 2015, Endsleigh Insurance surveyed over 4,500 students about their employment situation. They discovered that 77% of those students were working, at least part time, while studying full time. That’s just one snapshot of one group of Endsleigh customers; imagine how many students that is across the country. With basic living costs constantly rising, it’s hardly surprising that an increasing number of students are working alongside their studies just to survive.
Paying Income Tax as a Student
Although you are exempt from some financial burdens while you’re a student, like council tax, you do have to pay income tax on your earnings. The problems of over-paying arise largely because of your earning patterns as a student.
Things that confuse income tax payments:
- Working full time during university/college holiday periods, then only part time or not at all during the rest of the year.
- Having more than one part time job simultaneously.
- Working in another country for part of the year, usually summer holiday time
Does any of this sound like you? Don’t waste any of your hard earned money by leaving it sat in the Treasury’s coffers. It’s your responsibility to make sure that you are paying the correct amount of tax and HMRC have set up a system for reclaiming overpayments that they expect you to use.
But how does this mean that I’ve paid too much income tax?
There are two main reasons for students to have overpaid income tax:
- Being ‘emergency taxed’.
When you start a new job, you usually give your new employer a P45 form. This contains your tax code information and tells an employer what rate of income tax should be applied to your wages. If you don’t have a P45, then you will be taxed at the ‘emergency’ rate until your actual tax code can be established. This applies even if you are only working part time hours and definitely means that you are paying too much tax on your income. - Not earning over your tax free Personal Allowance
Everyone in the UK is entitled to earn up to a certain amount before they have to pay any income tax at all. This is called your tax free Personal Allowance. In the 2018-19 tax year, you can earn up to £11,850 before you pay any income tax at all. Most students don’t earn more than this in any one tax year. But, if you have worked full time hours during a couple of months in the summer, HMRC may assume that this will be your continued earnings for the rest of the financial year and tax you accordingly.
What is a ‘tax year’?
The UK’s financial year or tax year runs from 6th April to 5th April of consecutive years.
How much income tax do I pay, if I make more than the Personal Allowance?
Your rate of income tax depends on how much you earn; either 20%, 40% or 45% of your total taxable income. The tax bands which set the amount of income for each rate change annually. It is unlikely that you would ever earn enough to pay any more than 20% tax as a student. The income taxable rates in Scotland are different.
Do you pay income tax on all earnings?
No, not all income is taxable. For example, grants, bursaries and most scholarships are tax free. So is any interest you make on savings in an ISA account.
What about my savings account?
If you’re lucky enough to be starting student life with savings, you need to know that the interest you earn is classed as taxable income. So, you will need to add it into your calculation when you’re working out if you’ve earned the Personal Allowance amount. Many savings account providers automatically deduct 20% tax from your account, so you need to rectify this if it shouldn’t apply to you.
International students and UK tax
If you are an international student your UK tax position can become more complex. You need to take into consideration the double taxation treaty between the UK and your country of nationality and the type of studies you are undertaking in the UK.
The fact that you could leave the UK during a tax year can mean you can be owed a repayment of income tax for the year in which you leave the UK.
Students leaving the UK tax refund
If you decide to go travelling and have worked in the tax year you leave the UK a refund of tax is likely. You have four tax years to reclaim what you have overpaid and you need to let the tax office know when you left the UK along with some other information relating to you leaving.
Lots of countries have Double Taxation Treaties with the UK, which means that you only pay income tax in one of the countries. Some people have to pay it in both the UK and the other country, because such a treaty doesn’t exist. The rules for your income will vary depending on where you are going. It may be that you continue to pay income tax in the UK, instead of the country you are working in. Or, you don’t pay British tax, but pay the other country’s version of income tax while you are working there.
What about National Insurance Contributions?
You have to pay National Insurance Contributions (NICS) if you earn £162 per week or more. You cannot reclaim these payments because they go towards your State Pension – which will seem like a long way away at the moment. If you are self employed, you need to pay NICS once you are making an annual profit of £6,205. These are the 2018-19 figures and they usually change annually during the Budget. You can check the current figure here on the GOV.UK page.
How do I make a claim to get an income tax rebate?
Now that most local Tax Offices have been closed and HMRC are aiming to make tax digital, your first port of call is HMRC’s online information.
If you are employed, then you pay tax monthly through the PAYE (Pay As You Earn) system. This will be shown on your payslip. HMRC do an annual reconciliation check and send you a copy of this on a form called a P800. If they see that you are owed tax, instructions will be included.
If you are self employed, then you pay tax through the self assessment tax return system. You can claim any tax overpayments at the same time, on the same form.
Can I claim a tax refund online?
Yes, it is perfectly fine to submit your own claim online. GOV.UK is written very well, with clear instructions and guidance. We do need to warn you that HMRC has a range of fines that they issue for a variety of reasons: missing submission deadlines, non-payment of tax due and making mistakes on forms. You can get help from HMRC’s phone lines or online.
I want to claim my tax back, but I don’t work at the job any more
It doesn’t matter if you no longer work at the job you earned the income from. You just need your P45 parts 2 and 3, to send with your P50. You keep Part 1 for your records.
Your ex-employer is legally obliged to give you a P45 when you leave.
Does my tax rebate get paid by my employer?
In some cases you can be repaid an in year tax refund paid through your salary by your employer. For previous tax years your overpayment is sitting in HMRC’s bank account and that is where your rebate will be paid from. As part of the PAYE system, your employer is involved in the administration of our tax system, as your income tax is deducted before you get your pay. But they won’t be contacted about any tax rebate claim and are certainly not held accountable for any tax rebate payment.
I’ve already graduated, is it too late for me to do anything about a student income tax rebate?
Good news – no, it’s not too late because the rules allow for an income tax rebate to be backdated for four tax years.
Personal tax accounts
If you haven’t already opened up an HMRC personal tax account now would be a good time to do it. It allows you to gain access to your personal income tax details through a dedicated HMRC portal and will become something you can use for the remainder of your income tax life.
Tax Rebate Services Money
Tax is only one part of your finances where you can save money. Tax Rebate Services Money is worth using to find out if there are any other areas of your financial life that can be improved. It’s completely free to use and is packed full of guides and calculators about credit cards, mortgages, personal loans, savings and much more.
