Income tax

You’re not exempt from paying income tax just because you're a student. But you’ll want to be sure that you aren’t paying more than you should on your earnings and savings.

Income tax confusions can arise because you may work full-time during the vacations, part-time during term time, have two jobs or gaps between jobs.

The tax system is run by HM Revenue and Customs (HMRC).

How much tax do I have to pay?

•You can earn up to a certain amount -the personal allowance- before you have to pay any tax.  In 2010/11 the personal allowance is £6475.

•But, because the personal allowance is divided by 52 weeks, in any week in which you earn above £125 per week you’ll be taxed on the amount above £125 even though in the course of the year you may actually earn less than the personal allowance. Earnings above £6475 are taxed at three graduated levels:-
  20%   0 - £37,400
  40%   £37,401 – £150,000
  50%   Over £150,000

There is a starting rate for savings of 10% between £0-£2,440. If your non-savings income is above this limit the 10% rate does not apply.

On Earnings

•When you get your first job, or if you left your job in an earlier tax year, you should be asked to complete a Form P46 by your employer so that the correct amount of tax can be deducted from your wages.
•If you work throughout the year in the same job your income tax should be worked out correctly through PAYE (Pay as You Earn system).
•If you have two jobs contact HMRC to get a different tax code for your second job.
•If you only work during the holidays and expect to earn less than your personal allowance of £6,475 in the tax year ask your employer for Form P38(S) and then no tax will be deducted from your wages.
•If you leave your job make sure you get a Form P45. You should give it to your next employer so that your tax can be worked out correctly.
•If you are working, at the end of each tax year, you should get a Form P60 from your employer which will tell you how much you have earned and how much tax you have paid – keep it safe as you cannot get a replacement.
•Claim back overpaid tax using Form P50 if you leave your job and do not expect to start work again within four weeks.
•Self-employed? You must register with HMRC within three months of starting work. Use the Starting up a Business website or ring 0845 915 4515.

On Savings

•Unless your savings are in a tax free savings account, such as an ISA, any interest you receive will be taxed at 20% before you receive it. But, if you think that you will earn less than your personal allowance (£6475 in the tax year 10/11), you can fill in a Form R85 and give it to your Bank or Building Society. This will stop the tax being taken off your interest.

If the tax has been deducted and you realise you should not have paid it ask for a refund on Form R40.

•Make sure that you tell your Bank or Building Society if your income will be more than your personal allowance in a tax year, or when you start work as a doctor, otherwise you will find yourself with a bill for unpaid tax if you have completed a Form R85.

Rent a room scheme

•If you own your own house/flat you can rent a room in your home for up to £4250 per annum tax free.
•You can also take advantage of the scheme if you rent your home but take in a lodger – but only if your landlord allows you to do so.
•Income that you receive from this scheme is not counted in Child and Working Tax Credit claims.
•But you should declare this income when you apply for student financial support.