A survey by the NUS found 45% of students work part-time, and 1 in 7 work full-time. If you’re among the many juggling a job, student loans and studies, here’s how to make sure you aren’t paying too much tax on your hard-earned cash.
Is tax on earnings different for students?
The rules are exactly the same for students, but the system wasn’t designed with student working patterns in mind. Which means you could end up paying too little or too much tax.
What tax do I have to pay?
Whether you’re a UK national or a foreign student, you’ll pay two types of tax on income earned in the UK: income tax and national insurance. National Insurance contributions fund social security, which supports the sick, disabled, retired, unemployed and those on maternity. Income tax payments also fund state benefits alongside education, infrastructure, defence and much more. The tax year runs from 6 April to 5 April, and rates and thresholds are adjusted every year.
How much national insurance should I pay?
National insurance kicks in when you’re earning more than £155 a week. You’ll pay 12% on all income up to £827 a week, and 2% there after.
How much income tax should I pay?
Everyone, including students, has a personal allowance. This is the amount you can earn in a year before you start paying income tax (currently set at £11,000). The amount of tax paid is dependent on the size of your salary. If you’re earning between £11,001 and £43,000 you’ll pay basic rate tax at 20%. Earnings above this are taxed at 40%. But you really should be sleeping.
Seems simple … What’s the problem?
If you’re working two jobs or full-time over the summer, income tax gets a little complicated.
What’s different if I have two jobs?
The issue is you only have a single personal allowance, rather than a separate one for each job. HMRC’s default position is to apply the whole allowance to just one job (normally whichever came first). As a result, you could end up paying either too little or two much tax.
Why would I pay too much?
If your whole allowance is applied to your first job, you’ll have no allowance left for your second job. So even if your total income falls below the £11,000 threshold, income tax payments will kick in on your second salary.
What can I do about it?
Get in touch with Her Majesty’s Revenue and Customs (HMRC), which collects income tax on behalf of the government. They can either split your personal allowance or issue a refund at the end of the year. Fill out the PAYE New Starter Checklist when you land a second job to ensure you’re put on the correct tax code from the get go.
Why would I pay too little?
If HMRC doesn’t know you have two jobs, you may get a separate allowance for each. So you could earn more than £11,000 across both jobs but still not attract income tax deductions.
What can I do about it?
You don’t want pay a hefty tax bill, interest and penalties when HMRC become aware of the mistake. If you’re earning more than £11,000 a year but not paying income tax, contact HMRC as soon as you can.
What’s different if I work full-time over the summer?
If you earn £250 a week for 10 weeks over the summer, you’ll pocket £2,500. Which is way under your £11,000 personal allowance. The problem is that while this is an annual threshold, the Pay As You Earn (PAYE) scheme deducts income tax from your salary on a monthly basis. So a weekly summer salary of £250 may be treated as the equivalent of a £13,000 yearly salary. Employers now have to report real-time payroll information to HMRC to prevent this hiccup, but its still worth checking your monthly pay cheque to make sure income tax deductions haven’t kicked in.
How can I check I’m paying the right amount?
Try the tax checker on HMRC’s website. If you’re paying too much, you’ll need to fill out a P50 to claim the amount back.
Any other forms I should know about?
Paperwork is boring but important when it comes paying the right tax. Here’s a quick run down of the forms you need to know.
P60 – You’ll get one at the end of every year. It shows what tax you’ve paid on your income and can be vital in proving you’ve paid too much.
P45 – Make sure your employer gives you one of these when you leave a job. Without it, HMRC may put you on the emergency tax rate in your next job.
R85 – If you don’t expect to earn more than your personal allowance, fill this out and give it to your bank. They’ll stop deducting tax from any interest you’re earning. Every little helps.
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