Students need all the money they can get their hands on - and one of the easiest ways students can waste money is by paying too much tax. While students do not get preferential treatment under the tax system, not all their income is taxable. BBC News offers some guidance on the rules.
Students are subject to income tax, like everyone else
Do I pay tax on all my income?
No. Everyone has a tax-free personal allowance.
This means during the 2007/08 tax year you can earn up to £5,225 before your
income is taxed.
Any earnings above this amount are then taxed at 10% up to £2,230; 22% between £2,231 to £34,600; and at 40% on earnings over £34,600.
Are student loans taxable?
No. Student loans along with a number of other forms of support are not taxable.
The following are not taxable:
- Student loans and grants
- Contributions from your parents
- Most scholarships
- Most research awards
- Housing benefit
- Most gifts and loans from relatives
- Income from Individual Savings Accounts (ISAs)
- Prizes won by students for academic excellence.
What is taxable?
The most common forms of taxable income are earnings from full or part-time work, including tips and bonuses, and any income from self-employment.
If you receive dividends from shares in a company, Jobseeker's allowance (JSA) or interest from most National Savings Accounts, they are all taxable.
Interest from savings with a bank or building society is taxable, unless your total taxable income in the year is below the £5,225 threshold.
Have I paid too much tax?
You may find that you have paid too much tax - maybe because you weren't aware of the rules.
If your income for the same tax year is likely to remain below £5,225, you can claim back tax during that tax year.
If you think you have paid too much tax contact Revenue and Customs for a repayment claim form.
If you wish to see someone in person, you can search for your nearest Revenue office under the "Contact us" section on the department's website (see link on right).
What happens when I start my first job?
When you start work for the first time, your employer should give you a P46 form to complete.
This will mean you receive your wages under "Pay As You Earn" (PAYE), and you should be taxed correctly.
Your employer will send this to the Inland Revenue after your first payday to check its employer's calculations.
The Revenue might send you form P91 to complete to ensure that you pay the right amount of tax.
What if I've worked before?
If you have worked before or claimed Jobseekers allowance, you should have a P45 from your last job or when you stopped claming.
Hand this to your new employer; otherwise you will end up paying too much tax.
If you do not have a P45, get a P46 off your new employer.
I've paid too much tax. How do I claim it back?If you think you have paid too much tax during any one tax year, you should try to claim a refund.
Contact the Revenue to get a claim form.
You can contact the Revenue's inquiry line on 0845 307 5555.
Alternatively, if you wish to see someone in person, you can search for your nearest Revenue office under the "Contact us" section on its website (see link on right).
What happens if I'm only planning on working in the holidays?
Students who work only during their holidays and do not expect to earn more than £5,225 should ask their employer to complete form P38(S) which will ensure their wages are paid gross.
This does not apply to evening or part-time work outside normal holiday times, when students are required to complete form P46.
Some students who have completed form P38 (S) may be required to complete a tax return at the end of every tax year to ensure that their total taxable income has not exceeded their personal allowance.
Do I pay National Insurance contributions?
Most students are not required to pay National Insurance contributions, because their earnings are too small.
However, every employed worker whose earnings exceed the primary threshold of £100 per week must pay Class 1 (earnings-related) contributions.
These are deducted from wages/salaries by the employer. The rate of contribution depends on total earnings.
No contributions are payable under the age of 16 or by people over pensionable age.
The Revenue and Customs National Insurance Contributions Office (NICO) keeps the records for everyone's contributions throughout their working lives.
Where can I get further information?
If you need further information, leaflet IR60 on the Revenue and Customs website has more information on income tax and students.
The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.