Income Tax is a tax levied directly on personal income. Students are not exempt from paying income tax, but you’ll want to be sure that you aren’t paying more than you should on your earnings and savings. If you think you’ve paid too much tax, see the section below on reclaiming tax for information on how to obtain a refund.
How much tax do I have to pay?
The tax year runs from 6 April to 5 April of the following year.
You can earn up to a certain amount, the personal allowance, before you have to pay any tax. For 2023-2024 the personal allowance for most people is £12,570. However, because the personal allowance is divided by 52 weeks, in any week in which you earn above £242 per week you’ll be taxed on the amount above £242, even though in the course of the year you may actually earn less than the personal allowance.
Earnings above £12,500 are taxed at three graduated levels:
- £12,570 to £50,270 – 20%
- Higher rate – £50,271 to £125,140 – 40%
- Additional rate – over £125,141 – 45%
Savings interest is automatically taxed at 20%. If you’re on a low income, you may be able to get tax-free interest or some of the tax back. Higher or additional rate taxpayers will need to pay more tax.
Tax 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. Don’t put a cross in Box D regarding your student loan unless you have graduated or left your course for good. If you do, student loan repayments will be taken from your earnings, even though you are still a student. See the SLC Repayment site for more details.
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 HM Revenue & Customs (HMRC) to get a different tax code for your second job.
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.
If you are self-employed, you must register with HMRC as soon as possible.
Tax 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. However, if you think you will earn less than your personal allowance, 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 or flat, you can rent a room in your home for up to £7,500 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.
Reclaiming Tax
If you are one of the many students who work while studying, April/May is the perfect time to spring clean your finances. You might be entitled to a tax refund if you earned less than the personal allowance in the last tax year.
If you have worked during the last 12 months, you can check to see if you’ve paid the right amount of tax on HM Revenue and Customs’ Tax Refund Calculator. If you think you’re due a refund, the HMRC website will tell you how to go about claiming the tax back.