Tax tips if you are working this summer
Lectures have finished for the summer! Many students will be looking for a summer vacation job – but do you understand your tax position?
You have got a job (or two)
If you are going to be working in the UK, check your tax carefully – you do not want to end up paying more tax than you need to. If this is your first job since 6 April 2015 (when the new tax year started), then your employer will only take tax from you if you earn more than the ‘tax-free’ amount. Most individuals have a tax-free personal allowance of £10,600 for the tax year 2015/16– but the tax-free amount is spread evenly over the year. So at the end of month 1, you could have earned up to £883 and paid no tax; by the end of month 3, June 2015, you could earn up to £2,650 without paying tax and so on. But this only works if your tax code is correct. If it is not 1060L (which is code for the full tax-free personal allowance of £10,600), then check our website to ensure it is correct and if not see how you might get it changed.
If you have more than one job at a time, normally HM Revenue & Customs (HMRC) allocate your full personal allowance to your first job and tell your employer to deduct basic rate tax (20%) from your second job, by applying a BR (basic rate) code. This normally works well if you have both jobs throughout the year, but if you only work for part of the year, then you may find you do not use your full allowance in one job, but have still paid tax in the other.
So what can you do? If one job gives income over the whole year, then work out roughly how much income that will give you. For example, if you work in a bar at the weekends and earn about £40 a week, you would expect to earn around £2,000 over the year. You could ask HMRC to allocate, say, £2,600 of your allowances against that source. That would leave £8,000 of allowances to be set against another source such as a summer job. Bear in mind that the personal allowance is still spread evenly over the year, but by the end of September (month 6) you could earn up to £4,000 from your summer job and still pay no tax.
There is more information on contacting HMRC to split your personal allowance over jobs on our multiple jobs factsheet, and if you have already overpaid tax there is also help in getting a tax refund.
Remember to keep your payslips and form P45 (the form you should be given by your employer when you leave your job) as you may need this information if you need to reclaim any overpaid tax.
You may find yourself paying tax in the country you are working in. If so, you will need to take local advice to see whether you can claim any of it back – HMRC will not repay any overseas tax to you! Do remember you need to keep a note of any overseas income you receive as it forms part of your total income. But it should not be taxed twice as any overseas tax you pay on it will be set against your UK tax bill. You will need to keep evidence of the tax paid overseas as well as your earnings. There is more information on our 'going abroad' section.
What if you cannot get a job?
Unfortunately most state benefits are not available to students over the summer vacations and may only be claimed once their courses have ended. There are some exceptions, though. If eligible, you will continue to be able to claim some benefits. See the ‘tax credits and benefits’ section of our website for more information.
You can get good experience for your CV by volunteering or working as an intern for various organisations. Our website gives more information. Any expenses reimbursed to you in connection with these roles should not be liable to income tax provided they are within certain limits and that you genuinely incurred them.
Most importantly, have a good summer break so you are ready for the challenges ahead.