I’m home from university for the summer and I’ve started working full time in a local café to help pay off some of my student debt. I have just received my first month’s wages and there has been tax and national insurance deducted from my pay. Why is this happening when my pay is less than the annual personal allowance and can I do anything to reclaim any of this tax back from HMRC?
It’s really easy for a student to pay far more tax than they should when they take up a job during the summer holidays. Students need to be proactive in ensuring they don’t overpay on their tax, and ensure they get a refund from the taxman if they do. Most students won’t earn income above the personal allowance, yet due to the way the PAYE system works they may still have tax deducted from their weekly or monthly pay.
Everyone in the UK enjoys a personal allowance, which is the amount that you can earn each financial year before having to pay tax on your income. It has been increased a number of times in recent years, and now stands at £11,850. Most students who simply have a summer job are not going to be making that sort of money, so in theory they shouldn’t be paying tax on their summer job income. But that’s not exactly how our tax system works – you’ll pay income tax and national insurance in every payslip, with the calculations based on you earning that amount every week for a whole year – not just the summer.
As an example, let’s say that you have a summer job paying £300 a week for a five-week period over the summer break. Your total earnings will come to £1,500 – significantly below the personal allowance threshold, meaning you should not pay any income tax on those earnings. However, the PAYE system will likely deduct tax from your pay packet, based on the assumption that you would earn £15,600 a year if you worked all year – a figure higher than the personal allowance threshold. As a result, you will need to reclaim any tax that you have paid from HM Revenue & Customs. That said, the threshold for national insurance contributions is rather different – you need to pay 12% on any amount earned over £162 a week.
You’ll need to check whether you are due a rebate. You can do that with HMRC’s tax checker. To claim a rebate, you will need to fill out a P50 form, which you can find on HMRC’s website. You can print it out and post it to your local tax office or fill it all out online if you have a Government Gateway account. There is also the opportunity to reclaim money overpaid in previous tax years too.
The advice above is specific to the facts surrounding the questions posed. Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.