Results Day has been and gone, meaning that many budding students will soon be heading to university. If you’re one of them, it’s likely that your mind is occupied with thoughts of freshers’ week rather than finances, but trust us: it pays (literally) to start thinking about tax sooner than later.
Keep reading for some of IBISS & Co’s top tax tips for students, and learn about what you might need to pay, when, and how to reclaim any overpayments.
Tax Tips for Students: Income Tax
If you earn taxable income over the current personal allowance (for 2018/19, the threshold is set at £11,850), you will be liable to pay income tax. The rules regarding how much tax you pay (basic rate tax, for instance, is charged at 20 , whereas higher rate tax is charged at 40 ) are the same for most UK tax residents. The thresholds can change from year to year, so how much you earn in a particular tax year affects what you will pay.
However, for students, there are two important distinctions: taxable income and non-taxable income. Taxable income, as you might expect, includes earnings from a job, any perks (such as a bonus or company car), some benefits (Jobseeker’s Allowance, for instance) and interest from certain bank accounts. Non-taxable income, however, includes certain things you might not anticipate – like your student finance, some state benefits (Disability Living Allowance, for example), and the majority of scholarships and bursaries. Interest from ISA savings accounts is also non-taxable.
Bear in mind, too, that if you earn income from freelance work – perhaps you’re a tutor or proofreader in your free time – you may end up paying less tax than you expect. This is because if you don’t have an employer and you run the business yourself, you’re self-employed, and you only pay tax on your profits. Any viable business expenses (like advertising or stationery) can be deducted from your income, reducing the amount of tax you pay overall. You’ll need to submit a Self-Assessment tax return each year, so don’t forget to keep meticulous records – it’s worth enlisting the services of a qualified accountant to ensure that you file your returns correctly and on time.
Tax Tips for Students: Paying Too Much Tax
We discussed the potential benefits of being self-employed in the ‘tax tips for students’ section above; however, for many students taking on part-time or holiday work (or even full-time employment, if you study via the Open University or at night school), this work will fall under a traditional employer/employee setup and as such will be subject to PAYE tax.
Unfortunately, this often leads to students paying more tax than they should. PAYE works on the basis that a taxpayer will continue to earn income at the same rate for the rest of the year, meaning that if you pick up some temporary work, your tax charges will be calculated as if you would be working in that same role for the rest of the year: as such, you are likely to end up paying too much tax. It’s important that students who work keep records of how many hours they have worked, what deductions have been made, and how much they’ve earned within a given tax year (which runs from April 6th to April 5th).
Tax Tips for Students: Reclaiming Tax
In theory, you don’t need to do anything to receive your repayment from HMRC. At the end of each tax year, your employer submits all necessary details on your behalf: how much tax you’ve paid, how much you’ve earned, as well as information pertaining to any perks (bonuses, etc.). HMRC then perform a calculation to work out whether you’ve paid enough tax (based on the information they’ve received). If they believe that you haven’t paid the correct amount of tax, you will receive a P800 calculation containing details of what is owed, to whom, and what to do next. It’s important that you check this calculation to ensure that HMRC hold all the correct information – if any details are missing, it could affect how much tax you need to pay/claim.
If you think you’ve paid too much PAYE tax but have not received a P800 calculation, you can claim a refund online through your personal tax account or call HMRC directly. You’ll need the following info to hand before you phone:
- Employer details (for instance, the PAYE scheme reference number, which you’ll find on your payslip).
- Vital information about yourself (your full name, date of birth, address, and NI number).
- You may also be asked to provide an estimate of your earnings for the current tax year, so do consider this beforehand.
- If more information is needed in order to evidence your claim, you will receive a notification from HMRC.
Note that you have four years from the end of the relevant tax year in order to make a refund claim; after this time, the tax year becomes ‘closed’ to claims. Furthermore, even if you only wish HMRC to evaluate the tax year in which you believe there was an overpayment, HMRC may in fact review all ‘open’ tax years – so do ensure that all is in order before making a claim.
If you are submitting self-assessment tax returns, there’s no need to worry about submitting a claim; HMRC will handle repayment once your tax return has been processed.
This blog is the first in a series on student taxes. To be notified when the next article is published – and to keep up to date with all the latest news from IBISS & Co – please feel free to sign up to our mailing list, or follow us on Facebook, Twitterand LinkedIn.