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11 May 2021

Working While you Study – Are you Owed Money?

Frequently Asked Business Question:

My daughter who is currently studying at university has just started a part-time job and I would like to understand if she has to pay tax. Can you advise?

Top Tip:

Students who study full-time still have to pay income tax if the limits are breached. If you are paid using Pay As You Earn (PAYE), your income tax will be deducted automatically from your weekly or monthly pay.

There are a few reasons why students usually end up paying more income tax than they need to – often without even knowing it. The most common situation is that, when starting a part-time job, employers might put you on an emergency or incorrect tax code if you don’t give them a copy of your P45 as evidence of what your tax code actually is.

Students who go on a placement year or work part-time during university also often do so over a period that spans a number of tax years (tax years run from April to April). Most students don’t end up earning over their tax-free personal allowance within a single tax year, but if you choose to work extra shifts at your part-time job during certain times of the year (over the Christmas period) you could be totting up full-time hours. This will likely mean that your earnings in that month if earned every month for a year, would be enough to take you over the tax-free personal allowance and make you eligible to pay income tax.

This is because HMRC will start taxing you as soon as you’re earning above the monthly equivalent of the threshold, even if you don’t earn another paycheque for the rest of the year. But don’t worry – you can get the money back.

By law, you can earn up to £12,570 in a tax year without having to pay any tax on it. The majority of students will pay income tax at a rate of 20% on anything earned above that.

This also applies to any income you make working abroad for the summer. As you’re a UK resident working abroad on a temporary basis, you pay your tax to the UK rather than the country you’re working in. It’s a good idea to check in with HMRC before heading abroad to work to make this clear to them.

As well as income tax, you’ll pay National Insurance Contributions if you earn above £184 a week. Unfortunately, you can’t claim back overpaid National Insurance contributions, but it’s worth knowing that all your NI payments go towards things like the NHS and the state pension.

Your employer controls your tax payments to HMRC. Tax is deducted from your pay each month as PAYE (pay-as-you-earn) – you’ll be able to see this from your payslips. Sometimes HMRC might send you a P800 tax calculation if they think your circumstances have changed and that you might be paying the wrong amount of tax. If they calculate that you’re due a tax refund, they’ll either explain how to claim the refund online or send you a cheque.

For more information and/or assistance, please contact our Tax Team who will be pleased to help you.

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Alternatively, if you realise you are on the wrong tax code then you can simply contact HMRC directly and tell them. If you’re due a refund and you are still working, your employer will give you this in your next pay.  If you’ve left your part-time job, your employer will give you a P45 form which tells you how much tax you’ve paid on your salary for that tax year. You can use this form to work out if you’ve paid too much tax. Once you’re sure you have overpaid, you might be able to claim online as long as you have your employer’s PAYE reference number (this will be listed on your P45) and the details of the taxable income you received in that tax year. Otherwise, simply call HMRC and explain why you think you overpaid, making sure you have your National Insurance Number, details of your income and your P45 to hand. They will explain the next steps to you.

The advice in this column 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.

Contact Feargal

Feargal McCormack / Managing Director

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