Tax and National Insurance
Students are liable to pay Income Tax and National Insurance contributions in the same way as everybody else.
If you work for an employer during term-time, any Income Tax and National Insurance due will be deducted from your wages before you receive them. This is known as Pay As You Earn (PAYE).
Everybody can earn a certain amount before they start paying Income Tax - this is known as your Personal Allowance (£8,105 for the tax year 2012/13).
Income Tax is charged at three different rates. For the tax year beginning 2012/13 these rates are:
Basic rate: 20 per cent for taxable income of £0 to £34,370
Higher rate: 40 per cent for taxable income above £34,371-£150,000
Additional rate: 50 per cent for taxable income over £150,000
For the tax year 2012/13, you begin making National Insurance contributions when you earn above £146 a week (the earnings threshold). If you earn above the threshold you pay 12% of your earnings between £146 and £817 per week. You pay 2% tax on any taxable earnings above this. The rates change at the start of every financial year. Further details can be obtained from HM Revenue and Customs.
It is always important to check that you are paying the correct tax. If your income has varied over the year, you may be due a refund on the tax you've paid because you didn't use your Personal Allowance. Use the Inland Revenue Tax Checker to work out how much tax you should be paying on your wages. If you have paid too much tax, you will need to complete form P50.
Special rules if you work in the holidays
If you are a full-time student with a holiday job, you may not need to pay tax through PAYE (you will still pay National Insurance if you earn more than the weekly threshold). You can ask your employer for a form P38(S)
if all the following apply:
you're a full-time student in the UK, working only in the holidays
you're returning to full-time education after the holiday
your total income for the year is below the personal allowance
If you work during term time, you cannot use form P38(S).You are encouraged to see a Student Adviser for detailed advice and information concerning Income Tax and National Insurance problems.
Applying for a national insurance number
If you are employed or looking for work, you must have a NI number (or have at least applied for one). NI contributions help finance the National Health Service (NHS). By making contributions, you also build up your entitlement to certain social security benefits, including the State Pension.
If you don't already have a NI number you must apply for one:
as soon as you start work
as soon as you or your partner claims benefit
To apply for a NI number, you will need to telephone the Jobcentre plus National Insurance allocation service helpline on 0845 600 0643. They will make sure you need a number and arrange for you to undertake an evidence of identity interview.
During this interview you will be asked to supply the following information:
employer’s name and contact details
if you are an overseas student, confirmation that you hold a valid student visa
if you are an EEA national, confirmation of your nationality
You are allowed to work while you are waiting for your NI number to be issued.
Student tax code
At present there is no student specific tax code but this has been under review for the past few years. Further information on students and tax can be found on Direct Gov
but what follows is the current position by the Treasury
In his Pre-Budget Report on 24 November 2008 the Chancellor of the Exchequer announced that HMRC would be simplifying the PAYE arrangements for all working students and reducing burdens on their employers from April 2010. However, the previously announced work to introduce a new type of code for students will not now happen in April 2011.
We are exploring with stakeholders how the policy aim of simplifying PAYE for students can be achieved without the need for a specific student tax code. We are looking at our repayment processes and how it can engage with and educate students so that they have a better understanding of their entitlements and obligations.