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Cutting Your Tax Bill If You Are Training Or In Education

By: J.A.J Aaronson - Updated: 3 Apr 2018 | comments*Discuss
Tax Income Tax Student Education

The UK has one of the fastest-growing education and training sectors in the world. While the student population is growing, however, living costs continue to rise. As a result, an increasingly large proportion of students are being forced to work in order to fund their education. According to the latest available figures, over 50% have to work part time.

Regardless of the student status, there are still instances in which tax must be paid. Whether you are in education or not, if you are working then you may be liable to pay both Income Tax and National Insurance Contributions (NICs). Both of these are subject to a threshold system; if an individual's earnings for the previous tax year (which runs from April to April) exceed these thresholds, then these duties will be levied accordingly. In current tax year (2018-2019), you can earn up to £11,850 before you pay income tax, while you can earn £8,424 before you have to pay National Insurance at 12%.

Non-Taxable Allowances

If you are working while you are a student and your earnings exceed the non-taxable allowance thresholds, then you will unfortunately have to pay the relevant taxes. However, there are a number of options available to you to minimise your tax liabilities. The most important of these is making use of your non-taxable personal allowances, about which there are special rules for students who work in the holidays.

As there is a payment threshold for Income Tax and NICs, it therefore follows that any earnings below this threshold are not subject to these levies. In practice, however, many employees find that they do not make use of their personal allowance. This is because your wages are likely to be taxed 'at source' using the PAYE system, meaning that income tax is taken out of your pay packet before it ever gets to you.

In these instances you should always ask your employer for the P38(s) form towards the end of each tax year. By filling this in and returning it to your tax office, you are likely to be entitled to a refund on the income tax you paid on your personal allowance. It is important to remember, however, that this applies only to work done outside of term time.

Council Tax Exemption

Another key piece of tax relief available to students is Council Tax Exemption. If you are in full-time education, you are not required to pay council tax on your accommodation. However, you may well find that your local council still attempts to collect 'unpaid' fees. If this happens, you will probably be required to obtain proof of your student status. A signed letter from your place of education should suffice, but contact your council directly for advice.

Tax-free Savings

There are also ways in which you can make the tax system work for you if you have a student loan. The vast majority of university students receive a government loan which is designed to cover 'maintenance' including accommodation. However, this is often supplemented by financial help from parents. Furthermore, it is highly unlikely that you will have to pay for an entire year's accommodation up front.

As a result, you might consider placing a portion of your loan into an ISA. This is a tax-free savings account into which you can currently place up to £20,000 per tax year. With tax-free interest accruing, you will almost certainly find that your money will work harder for you in an instant access ISA, from which you can still withdraw chunks when you need it, than in a regular current account.

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