Income Tax and Students

Many young people look forward to university as, amongst other things, a way of holding off the real world for a few years longer. However, the rising cost of education and spiralling living costs has meant that many students in higher education are forced to work during the term and in holidays simply to make their learning possible.

If you are a student who works, then you will unfortunately be eligible to pay Income Tax and National Insurance Contributions (NICs) in exactly the same way as the rest of the working population. This comes as quite a shock to many who have been led to believe that student-hood is totally tax-free. However, it is not as bad as it seems; not all of your income will be taxed, and it may well be that you won't have to pay anything at all.

Payment Thresholds

As with almost every tax, there is a payment threshold for both Income Tax and NICs. This means that there is a minimum amount that you must be earning in order to be liable to pay tax. The threshold for Income Tax is £11,850 for tax year 2018 -19. If you are only working part-time (which is almost universally the case for students), this may well mean that you won't have to pay Income Tax at all. For NICs, the threshold is a weekly one; if you earn over £162 per week for tax year, then you will have to pay NICs.

If you are eligible to pay tax, the way in which you pay it will depend on the nature of your employment. If you are working for an employer during term time, your tax affairs are very simple. Your employer will arrange for your tax payments to be deducted from your wage packet via a system known as PAYE, or Pay As You Earn. You won't have to do anything at all – in fact; you may not even notice that it's gone.

Holiday Work

There are different rules, however, if you only work during the holidays. If you are employed solely outside term time, you may not be required to use the PAYE system. Instead, you should ask your employer for a P38(s) form, which can be downloaded from the Directgov website. If you are a full-time student studying in the UK, you will be going straight back into full-time education once the holiday has finished, and your income is below the Income Tax threshold, then you may be dealt with differently. Once your employer has sent off the form the Inland Revenue will let you know what this entails.

The vast majority of working students are employees. However, a small number are self-employed, and these individuals are dealt with differently. If you are self-employed, regardless of your income, you are required to register as such with the Inland Revenue within three months of becoming self-employed. You will then have to Fill Out A Self Assessment Form each year and your tax bill (if there is one) will be calculated for you.