Tax is confusing at the best of times, but when you're a student working a part-time job at uni it can seem even more mind-boggling.
56% of UK students work part-time while doing a degree, but many don't know how much tax they should be paying. As a result, they often end up paying too much. Plus, many are unaware that they could be eligible for a student tax refund if they've overpaid – and they're missing out on £100s!
Reclaiming your cash is easier than you might think, and if you've graduated, you haven't missed the boat either. We'll show you how you can claim back overpaid tax from as early as 2020/21.
Although you don't have to pay council tax, students studying full-time technically do still have to pay income tax.
However, there are a few details about the way students tend to work while studying that mean they often pay more tax than they need to.
You could be one of the hundreds of students in the UK that has money left unclaimed, and just imagine what you could buy with that!
In a nutshell, income tax is the tax deducted from your earnings – so that includes any wages from your part-time job.
If you get paid using PAYE (Pay As You Earn), your income tax will be deducted automatically. Most part-time jobs will pay you this way, and you'll see how much tax you're paying on your payslip.
If you're self-employed or earn income from any other source, you'll have to complete a self-assessment tax return each year to pay your tax.
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 (PAYE code). This can happen 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 two tax years (tax years run from April to April). This can confuse things a bit in the eyes of HMRC (His Majesty's Revenue and Customs – a.k.a. The Tax Man).
Most students don't end up earning over the 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 holidays, for example) 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 that money back.
By law, you can earn up to £12,570 in a tax year without having to pay any tax on it.
However, the allowance decreases by £1 for every £2 that your income goes above £100,000. For income of £125,140+, there is no personal allowance.
With the £12,570 personal allowance, you pay tax at a rate of 20% on income that's between £12,571 and £50,270. If your salary is higher than that, the chunk of income up to £50,270 still gets taxed at 20%, but the remaining amount will be taxed at a higher rate depending on the tax bracket.
The table below shows how much tax you'll pay based on your income:
| Tax band | Taxable income | Tax rate |
|---|---|---|
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
| Tax band | Taxable income | Tax rate |
|---|---|---|
| Personal allowance | Up to £12,570 | 0% |
| Starter rate | £12,571 to £14,876 | 19% |
| Basic rate | £14,877 to £26,561 | 20% |
| Intermediate rate | £26,562 to £43,662 | 21% |
| Higher rate | £43,663 to £75,000 | 42% |
| Advanced rate | £75,001 to £125,140 | 45% |
| Top rate | Over £125,140 | 48% |
This also applies to any income you make working abroad for the summer. As a UK resident working abroad temporarily, you pay taxes 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 so this is made clear to them.
As well as income tax, you'll pay National Insurance contributions if you earn above £242 a week (£12,570 per year). Before July 2022, this threshold was £190 a week (or £9,880 a year), but it has since increased to match the income tax personal allowance.
You can claim back overpaid National Insurance contributions, but it's a little more complicated. You can use this tool to help. It's worth knowing that all your NI payments go towards things like the NHS and the State Pension, so you'll get your money back eventually.
Remember that you'll need to complete a self-assessment tax return if you're self-employed – our guide explains how.
Unless you're self-employed (in which case you do your own taxes), your employer controls your tax payments to HMRC. Tax is deducted from your pay each month as PAYE – 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.
However, there are no guarantees that HMRC will send you a P800 calculation and you might not want to sit and wait around for it to (maybe) arrive. As complicated as it may seem, it's best to be proactive and do the calculations yourself.
There are a few different scenarios in which you might need to claim tax back – here's how each works:
We know it can seem daunting but, when that hard-earned cash lands back in your account, it'll be worth it.
Are you aware of these basic tax facts every student needs to know? Time to swot up – it could save you waiting for a refund.
Jake joined Save the Student in 2010 and is the COO. As an expert across student finance, Jake has appeared on The BBC, The Guardian, Which?, ITV, Channel 5 and many other outlets. He particularly enjoys sharing tips on saving money and making extra money with opportunities like paid surveys and part-time jobs.
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