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Christmas. The Time to Eat, Drink, Be Merry and Earn Some Extra Cash.
It’s the time of year when many shops, restaurants and cafes are searching for an extra pair of hands to get them through one of the busiest time of the year, ideal for any student while they are on a break from college or university to top up their bank accounts ready for the new year.
Inevitably you or event your parents may be wondering whether students need to pay tax on their christmas jobs.
Do Students Pay Tax?
Yes, everyone who works is subject to the tax rules regardless of age. However, almost everyone is entitled to earn an amount without paying any tax, currently this is set at £11,500 for the current tax year but it changes each year. This is called your Personal Allowance.
A tax year runs from 6 April to 5 April, so the tax year 2017/2018 runs from 6 April 2017 to 5 April 2018 and over the course of this year the first £11,500 (£958.33 per month) of earnings are tax free.
It is common for students not to earn more than the personal allowance, however the Payroll or PAYE system for declaring earnings and receiving entitlement to the tax free amount means students often end up paying tax incorrectly.
Why a Students can Pay Tax Incorrectly on a Christmas Job
The payroll system assumes that your earnings over Christmas represent what you will earn for the whole tax year and tax is calculated on this basis.
So for example, a student has a Christmas job for the month of December and earns £1,400 in this month. The payroll system will assume that this student is earning this consistently for the tax year, so will have earnings over the Personal Allowance of £16,800 (£1,400 x 12 months). The gross earnings, less personal allowance, will be taxed at 20% and this will be shown on the December payslip.
If this student doesn’t work at another time during the tax year, he/she will have paid tax incorrectly on their December earnings.
How Students Get a Tax Refund
If you know you are not going to earn more than the Personal Allowance of £11,500 then you can apply for a Tax Refund.
Firstly it is recommended you check you are entitled to a tax refund on the HMRC website here.
Once you have confirmed that you need to claim for a tax refund they you need to complete a P50 form. This can be done online here and involves creating an online account with HMRC or by post by completing then printing off the form here.
Should Students Pay National Insurance?
National insurance is worked out separately to Income Tax and is payable at a rate of 12% on earnings over £157 per week as a flat rate so no refunds will need to be made in respect of National Insurance. If you do feel a mistake has been made in working out National Insurance you should approach your employer.
Unfortunately students can be an unlikely victim of the tax system so it is really important that you keep hold of all your payslips and P60s to help you work out your Tax Refund correctly.
Remember everyone has different personal circumstances, so seek advice if you are unsure of the factors surrounding your personal situation.
Anita is a Chartered Accountant with over a decade of experience taking self employed business owners from financially confused to business savvy.
She is the creator of the ‘Go Self Employed’ website, which her corner on the internet where she makes self employment less terrifying.