Tax and National Insurance

If you work & you are a student you are liable to pay income tax and National Insurance contributions on your earnings in the same way as other UK employees. Here are some key tips you need to know (click):

When you need to pay tax
Know your Personal Allowance
How to get a Tax Repayment
Look after your P45 & P60
What if I have more than one job?
Know when you need a P38(S)
Understand a bit about your tax code
National Insurance – Do I have to pay it?
National Insurance – Can I claim it back?
Know your NINO!
Notify HMRC if you change your address
What about working for myself/running my own business? 

When you need to pay tax

Whether you work during the term-time or just in the holidays you will normally have tax and National Insurance contributions deducted from your earnings. However, everybody can earn a certain amount tax free in each tax year. This is known as your Personal Allowance. Each tax year begins on 6 April and ends the following April.

(Also, if you are an entrepreneurial student/have your own business, tax may be due so have a look at the last Tax Tip below).

Know your Personal Allowance

The Personal Allowance for the current tax year (ending 5 April 2008) is £5,225. This means that over the whole tax year you can earn £5,225 tax free. All income over this amount is taxable.

The tax system works so that, for collection purposes, the allowance is apportioned on a weekly or monthly basis, depending on how often you are paid. This is so that the tax free amount is spread across the year. So, it does not mean that you can earn £5,225 before you start paying tax.

In the next tax year, 6 April 2008 to 5 April 2009, the Personal Allowance will be £5,435.

How to get a Tax Repayment

If over the tax year you earn less than your Personal Allowance and have paid some tax you can claim a repayment. To help you work out if you are entitled to a repayment you can use our tax calculator to help you; this can be found at www.studenttaxadvice.org.uk which goes live from 3 March 2008. You will also find instructions on the site on what to do next.

Look after your P45 & P60

A P45 should be given to you whenever you leave a job. Keep this safe and give it to your next employer. And, if you are still working on 5 April, your employer will give you a P60. They must do this by 31 May. It summarises the amount you have earned as well as the amount of tax and National Insurance contributions that have been taken off your wages.

Both of these documents are especially important if you find you need to claim a tax repayment, so always keep them safe.

What if I have more than one job?

For tax, it doesn't matter how many jobs you have, you are only entitled to one Personal Allowance in any tax year. (National Insurance works in a different way. See below).

If you start another job without giving up your first job you won’t have a P45 to give to your employer. Instead you will have to fill out a P46. You should use this form to tell your new employer you are working somewhere else as well. You don't have to tell them where you are working or how much you are earning.

Have a look at the Tax Tip below about tax codes because you may be paying too much tax, especially if you are earning less than the Personal Allowance at your first job. Or see our website, www.studenttaxadvice.org.uk which goes live on 3 March and which will have a section on having two part time jobs.

Know when you need a P38(S)

This is the form for students who only work during the holidays and expect to earn less than the Personal Allowance during the tax year. If you think this applies to you, you should ask your employer for the form as it will mean that your employer does not need to deduct tax from your wages.

But it should be pointed out that some employers don’t offer this option, as it’s a special arrangement that is voluntary for them. But it’s still well worth asking your employer for the form if you do only work in the holidays, and you expect to earn no more than the Personal Allowance as it will help you with your tax.

Understand a bit about your tax code

If you look at your payslip, your P45 or your P60, you may find a box called ‘Tax Code’. Most students will either see a 3 digit number followed by a letter (e.g., 522L) or just the two letters, BR. 522L means that you have your full Personal Allowance of £5,225 being taken into account when you are paid. (From 6 April 2008 this code would change automatically to 543L as the Personal Allowance will increase to £5,435).

The tax code is used by your employer to work out how much tax to deduct. If you only have one job and your code is BR it is likely that you will have paid too much tax as BR means all of your earnings are taxed at Basic Rate (22% until 5 April 2008, 20% from 6 April 2008). This means none of your Personal Allowance is being used at that job. To get this changed you will need to contact your HMRC tax office and you can find details of how to do this at www.studenttaxadvice.org.uk from 3 March 2008.

If you have more than one job it is often normal for one job to use 522L (543L from 6 April 2008) and the others to use BR. But even when this happens you may pay too much tax if you earn less than the Personal Allowance in the job that has 522L as the code.

If you only have one job and the code is 522L then you are more likely to be paying the right amount of tax as your Personal Allowance will be taken account of before you pay tax.

But do check whether you are paying the right amount of tax and whether you might be able to claim a repayment by checking out our online tax calculator at www.studenttaxadvice.org.uk (live from 3 March 2008).

For more information on tax codes have a look at: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/DG_4015472

National Insurance – Do I have to pay it?

Yes, your employer should deduct National Insurance contributions from your earnings whenever you earn more than £100 per week (or £435 per month) during the current tax year. This is known as the Earnings Threshold. But if you are paid no more than these amounts then your employer should not deduct National Insurance contributions.

If you run your own business you may also have to pay National Insurance contributions depending on the level of your earnings from self-employment – have a look at our last Tax Tip at the end to find more information about being self-employed.

National Insurance – Can I claim it back?

National Insurance is different to income tax as your earnings are looked at weekly (if you are paid weekly) or monthly (if you are paid monthly) rather than assessed against an annual allowance like income tax is. So unless your employer has incorrectly deducted National Insurance contributions based on the above limits, you cannot obtain a repayment.

If you have more than one job with separate employers who are not carrying on business in association with each other, each employer will look at these thresholds separately. So for example, if you had 2 employers paying you £60 each per week you would not have to pay National Insurance contributions as both employers are paying you below the £100 earnings threshold (even though the total you earn is £120). Again, this is different to income tax where all of your income is added together and compared to your Personal Allowance to see if you have tax to pay.

In the next tax year, 6 April 2008 to 5 April 2009, the weekly National Insurance Earnings Threshold changes to £105 and the monthly threshold changes to £453.

For more information about National Insurance contributions visit http://www.hmrc.gov.uk/rates/nic.htm.

Know your NINO!

Make sure you always quote your National Insurance number (NINO) correctly. You should tell it to your employer when you start work. You will also need to quote it if you need to contact HMRC. Using your own NINO correctly will make sure the National Insurance contributions that you pay are recorded against your name and will help to prevent identity theft. It will also help to ensure you pay the right amount of tax.

Banks and building societies will also usually ask for it when you open new accounts.

You will normally receive a National Insurance number card when you reach the age of 16. If you are a foreign student and you want to work you should apply for a NINO if you don’t have one by telephoning the Jobcentre Plus NINO allocation service helpline on 0845 600 0643. They will make sure that you need a NINO and will arrange for you to undertake an evidence of identity interview.

Notify HMRC if you change your address

Make sure you update your HMRC tax office if you change address, especially as your employer won’t tell the tax office for you. You can find out which HMRC tax office you need to deal with online at www.studenttaxadvice.org.uk (from 3 March 2008).

What about working for myself/running my own business?

Some students have become quite entrepreneurial and are running their own businesses, for example you might be running bar quizzes from which you earn a profit. Or perhaps you get money from repairing people’s bicycles and doing other errands. Or maybe you are making money from an internet site you have set up.

If you are running your own business you need to register with HMRC within 3 months of starting your business, or you could pay a penalty. You will pay tax on profit you make in excess of your Personal Allowance. We will normally send you a Self Assessment tax return each year to enable you to do this. You may also have to pay National Insurance contributions. You may also need to register for VAT (although for a student in full time education, this is very unlikely). Information about all of this is available online (see below).

Because Personal Allowances are for all your income added together, you may find your income goes over the Personal Allowance if you have your own business and also have an employer you work for.

As mentioned, there is lots of information on being self-employed available online. A good place to start is: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/WorkingAndPayingTax/DG_4015975


For more information about HMRC’s student tax campaign, please contact Katie Shaw, Nicki Akers or Joanna Kwiatkowska at Fishburn Hedges on hmrc@fishburn-hedges.co.uk or 020 7839 4321