HomeStudents – how much tax are you paying?
If you are starting university this month or returning to continue your course then it might be a good time to think about tax. Funding your way through your course can be tricky, so make sure you check your tax now and throughout the year ahead to ensure you aren’t paying too much.
Our guide will help you and offers pointers for students and graduates on checking their tax and student loan deductions.
I am working during term time. How should I be taxed?
What is the minimum I should be paid?
I’ve got some savings. How are they taxed?
I have moved into new accommodation. Do I pay council tax?
I worked in the summer and had tax taken off my pay. I’m not going to work again until the next vacation. Can I get a refund now?
If you stopped work part way through the tax year and are not going to have a continuing source of taxable income – for example, you are not intending to go back to work at university within four weeks or claiming a state benefit – you should be able to claim an in-year tax repayment using form P50.
I am working during term time. How should I be taxed?
Students do not have any special tax treatment so the Pay As You Earn (PAYE) system applies to your earnings in the same way as any other employee.
Your employer has to work out which PAYE tax code to use to deduct tax from your wages. To enable them to do so, you will be asked to provide certain information – your employer may refer to this as 'P46' or 'new starter' information.
Depending on your answers to the new starter questions, your employer will use one of the following PAYE codes:
- one which gives you the full benefit of your annual personal allowance, sometimes described as a ‘cumulative’ tax code
- one which gives you part of your personal allowance for each pay period so, if you are paid monthly, you get one twelfth of your annual personal allowance each month and if you are paid weekly, you get one fifty second’s worth. This code may be referred to as being used on a ‘week 1’ or ‘month 1’ code
- code BR which means you pay tax at the basic rate, currently 20%, on all of your wages.
If this is your first job in the tax year, you can usually declare to your employer that you fall under category A on the new starter checklist, which means a cumulative code will apply.
You should always check your tax code to see how you are being taxed. You should contact HMRC if you do not understand it or think it is incorrect. Our full guide to checking your tax code explains more.
If this is your first job then our section on ‘first time workers’ guides you through the tax-related things you may need to understand when starting work.
I graduated this summer and am now getting a job. When and how do I have to start paying back my student loan?
There are two types of income-contingent loans, referred to as ‘Plan 1’ and ‘Plan 2’ loans.
Which one you have depends on when you took out the loan and which part of the UK you studied in – England, Northern Ireland, Scotland or Wales. It is possible to have more than one type of loan if you have been on more than one course and one started before 1 September 2012 and one afterwards. The Student Loans Company website has a tool to help you work out which type of loan you have.
Both Plan 1 and Plan 2 loans are repaid via the tax system and are not deductible expenses for tax purposes. If you graduated this summer then you only need to start repaying your loan from April 2017 if you earn above the repayment threshold (currently £17,495 for Plan 1 loans and £21,000 for Plan 2 loans).
For more information on both types of student loans, check out our student loans guide.
What is the minimum I should be paid?
The National Minimum Wage (NMW) and National Living Wages (NLW) are the lowest amounts which employers should legally pay workers who are entitled to them. The NMW and NLW are hourly rates of pay set by the Government and monitored by HMRC.
There are four NMW rates and it usually changes on 1 October each year. The rates shown below apply from 1 October 2016:
| Age |
NMW per hour (rate from 1 October 2016) |
|---|---|
| 21 and over | 6.95 |
| 18-20 | 5.55 |
| Under 18 | 4.00 |
| Apprentices* | 3.40 |
| * For apprentices under 19 or those in the first year of their apprenticeship. Apprentices aged 19 or over and past the first year get the 18-20 rate or 21 and over rate or the NLW if 25 and over, per their age. | |
Earlier years’ rates and guidance on what to do if you think you are not getting the NMW can be found on GOV.UK.
The NLW of £7.20 per hour came into effect on 1 April 2016 and is a premium on top of the NMW for certain workers. You have to be aged 25 or over to qualify for it. The rate will be reviewed again from 1 April 2017. If you are eligible, then you will receive at least that amount of pay per hour.
I’ve got some savings. How are they taxed?
Many types of savings and investments produce income which is taxable, although some have special tax treatment – for instance, Individual Savings Accounts (ISAs) are tax-free.
In 2016/17, a new ‘personal savings allowance’ (PSA) of £1,000 (or £500 for higher rate taxpayers) has been introduced, meaning most people will have no tax to pay on interest they receive from a bank or building society account. Additional rate taxpayers will not be entitled to any PSA.
Please also note that the PSA comes on top of the normal personal allowance and the 0% starting rate for savings (£5,000). These two things taken together mean that anyone with total taxable income of less than £16,000 (for example, from wages, profits, pensions and savings – not including dividends) will pay no tax on their bank or building society interest in 2016/17, even without the new PSA.
For more information on savings, check out our ‘savings and tax section’.
I have moved into new accommodation. Do I pay council tax?
Council tax (or rates in Northern Ireland) is a local authority tax on individual households. Whether your household is liable for council tax depends on who your housemates are.
Usually if you live in a hall of residence, your accommodation will be exempt from council tax. If you share a house with other full-time students then the household should also be exempt.
There can be issues if one of your housemates stops studying or is on a part-time course, our guide on ‘students and council tax’ provides more information on this.
(14-09-2016)
Contact: Claire Thackaberry (please use the 'Contact Us' form) or follow us on Twitter:@TaxGuideStudent
