National Insurance and Income Tax

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Students are affected by tax from the day they are born. It mainly costs you in the form of VAT, which is automatically added to your bill when you purchase a product.

When it comes to employment, there are a few taxes that you need to be aware of

National Insurance

National Insurance, known as NI, is automatically taken out of your wage packet and put against your National Insurance number, whenever your wage reaches more than £110 per week (or £477 per month) per tax year (correct for April 09 - April 2010). You pay 11% on any money you earn above £110 per week, and an extra 1% on the upper earnings limit. Once you have paid National Insurance you cannot claim it back, even if your wage averages less than £110 per week over the year. National insurance may be rebated if you have an employer's pensions scheme.

However, do not feel ripped off. Every year you make a National Insurance contribution goes on your record and will help you when you come to retirement and probably get you a bigger state pension.

Income Tax

In addition to National Insurance, you are expected to pay Income Tax, which is charged at various rates. For the tax year of 2009-2010 there is a tax free "personal allowance" of £6,475 - this means that if you earn below this from all sources of income for the year (income excludes student loans, bursaries, etc) then you don't have to pay any Income Tax. For wages up to £37,400 you are charged at 20%, and at 40% on everything above £37,400.

However, income tax can be claimed back if you have overpaid for any reason. If you feel you have overpaid, yuo can check to see if you're eligible for a rebate by using the student tax checker.

Working during holidays

However if you are a full time student, only earning money during the summer holidays, and your total income for the tax year falls within the personal allowance, then you are exempt from paying income tax. If this applies to you then you or your employer should fill out a P38(S) form when you start your job. The P38(S) form is downloadable from HMRC here.

Remember, to be eligible for tax free wages, you must:

• Be a student who will be studying until after the end of the tax year (April 5th).
• Have an income of less than £6,475.

If you are not eligible, your will tehn be required to sign a P46, or hand in a P45(3) from an earlier job, and once this information is received by HMRC you will be taxed accordingly.

Claim Tax Back

To claim tax back you can go to a tax office with your National Insurance Number and proof of your identity including proof of where you live; or simply write the tax office a letter containing the following:

• Payslips
• P45/P60
• Information about your benefit and employment history

Your query will be dealt with if all information is provided and, if entitled to a refund, you will be sent this through the post.

When should I claim?

The current time limit to reclaim overpaid tax stands at 5 years from January 31st. However, this will change in April 2012 to 4 years for students. Of course, 4 years is plenty of time to sort out a few simple forms.

What could you do with £100...?

No more beans on toast for the 16% of students who have received refunds of more than £500! And with the average refund sum of £100¹, you could:

• Go to the cinema every week for 28 months²
• Get return flights to Prague with plenty of cash left over for spending money³
• Treat nine of your friends to see Avenue Q in the West End⁴
• Buy a digital camera

When you're a student, every little helps!

"Since starting my degree, I've spent every lunchtime working in a deli to get some extra cash. I was delighted when I realised that because I'd earned under the Personal Allowance last year, I was entitled to a refund - the money has certainly come in handy this summer!"

Rachel Shaw, First Year Geography Student.

"I'll be spending this summer working in promotions. I don't expect to earn more than £6,475 so I'll certainly be using the tax refund calculator to see if I'm due a refund – when you're a student, every little helps!"

Viv Bowdler, Second Year Graphic Design Student.

Student Tax Tips

1. Tax and National Insurance is deducted from students' earnings in the same way as with other workers. However, everybody can earn a certain amount tax-free each tax year - the Personal Allowance - which is currently £6,475.
2. If students earn less than the Personal Allowance and have paid some tax, they can claim a refund. Use the tax refund calculator to help work this out.
3. Students should receive a P45 form on leaving a job which should be given to their next employer. If working on 5 April, they will be given a P60 which summarises earnings and tax and National Insurance deductions.
4. Students are only entitled to one Personal Allowance in any tax year (April to April), even if they have more than one job.
5. The P38(S) is the form for students who only work during the holidays and expect to earn less than the Personal Allowance. Students should ask their employer if they think this applies to them.
6. Tax codes are found on payslips, P45s or P60s. Most students will either see a 3 digit number followed by a letter (e.g. 647L) or just the two letters, BR (Basic Rate). 647L means that your full Personal Allowance of £6,475 is taken into account when you are paid.
7. Employers deduct National Insurance contributions from students' earnings whenever they earn more than £110 per week (or £477 per month). Unless an employer has incorrectly deducted National Insurance contributions, students cannot obtain a refund.
8. Students should tell their employer their NINO, received at the age of 16, when starting work and quote it when contacting HMRC. Using it correctly will make sure that National Insurance contributions are recorded against the student’s name and will help to prevent identity theft.
9. Foreign students should apply for a NINO by calling the Jobcentre Plus NINO allocation service helpline on 0845 600 0643.
10. Students with their own businesses need to register with HMRC within 3 months. Tax is payable on profit made in excess of the Personal Allowance - a Self Assessment tax return will enable you to calculate this.
11. Students should make sure they notify HMRC if they change their address

Related Articles and links

• Beginners' guide to taxing
• Get Tax Free Interest on your savings (Form R85)
• Student Finance
• Student Tax Advice on the Direct.gov.uk site
• HM Revenue & Customs Codebreaker - information on tax in the form of a game
• Reclaiming Tax Back
• Information on tax including the P38S

Notes

1. Refund statistics taken from research by ICM carried out on behalf of HM Revenue & Customs, February 2008
2. Based on student ticket at Odeon costing £3.50
3. EasyJet offer flights from London Stansted to Prague from £27.00
4. Weekday tickets to Avenue Q start at £10