Do Students Need Income Tax and National Insurance?

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  • Do Students Need Income Tax and National Insurance?

It is a common misconception that students don’t have to pay income tax in the United Kingdom. Unfortunately, you do. It’s just that their total income doesn’t usually take them over the personal allowance. The personal allowance is the amount that is set by the Government on a yearly basis that you can earn each year without having to pay any tax.

We detail out below an overview of how income tax and national insurance affect students.

Income tax how is it dealt with?

Income tax is charged on all assessable income in the tax year, and the tax year runs from the 6th April to the 5th April every year. Every resident in the United Kingdom has a personal allowance which is an amount that they can earn without having to pay any tax.

The personal allowance is worked out based on a set figure every year, this is set by the Government in their budget speech. For instance, this could be £12,500.00 per annum that you can earn without having to pay any tax. You may find that your personal allowance may be bigger if you claim marriage allowance or any blind allowance. If you have an income that is over £100,000.00 per annum, then your personal allowance does go down.

If you don’t earn any money during the tax year that is over and above your personal allowance, then you won’t have to pay any income tax. Any amount over and above your allowance is then taxed at 20% for the initial part. This can increase when and as you hit a higher bracket and can be upwards of between 40% and 50% depending on what band you are in. You should refer to the Governments website at any one time for what the personal allowance is.

Do I pay tax on my savings?

Interest on your savings may be taxed as well at 20% initially. But if you are on a low income you may be able to avoid this tax for instance tax savings on interest. Most people can earn interest on their savings without paying tax. You can have up to £5,000.00 in interest tax free and this is your starting rate of savings. The more you earn from the above income the less your starting rate for the savings will be. If your income is over £17,500.00 or more then you are not entitled to anything. You can also save or invest your money in a tax free with individual savings account called an ISA.

What is an ISA?

The term ISA stands for individual savings accounts and allows you to save tax free into a cash savings or investment account. ISA’s are offered by Banks, Building Societies, Insurers and Asset Managers and National Savings and Investments.

What are the different types of ISA’s?

There are five different types of adult ISAs all of which have the advantage of being tax free. But unfortunately, that is where their shared similarities end.

These are as follows: –

Cash ISA – this is basic ISA and allows up to £20,000.00 tax free.

Stocks and Shares ISA- This allows up to a £20,000.00 allowance tax free gains, no further tax on dividends or tax-free interest.

Innovative finance – peer to peer lending account – £20,000.00 allowance and tax-free interest

Help to Buy ISA – this is a savings account for first time buyers £3,400.00 in the first year. £2,400.00 thereafter. 25% top up, tax free interest and closes to new savers from the 30th November 2019 unfortunately.

Lifetime cash ISA – £4,000.00 allowance, 25% top up, tax free investment, only those between 18 and 39 can open.

Lifetime stocks and shares ISA – £4,000.00 allowance. 25% top up, tax free gains and no further tax from dividends, tax free interest and only those between 18 and 39 can open.

There are two further ones for junior people.

Not all your income is taxable. Student grants and bursaries and all scholarships are tax free. Sometimes private scholarships are taxable so you should confirm that such payments are tax free.

Tax is collected either through your employer in a system known as pay as you earn (PAYE) or through a self-assessment process if you are self-employed. To find out and check whether you are paying the right amount of tax then don’t hesitate to look at the Government website.

Overpaying tax

Do people overpay their tax? Almost about 8% of full-time students who work doesn’t exceed their personal allowance in the year could be overpaying their tax. But, due to the way the tax is calculated students sometimes do overpay their tax?

The main reason for this is student income often varies considerably during the year. For example, you might work full time during the summer vacation and only part time during the term. Therefore, although your overall earnings don’t exceed your personal allowance, or only do by a small amount, tax may be deducted in the summer on the assumption that your earnings will continue for the full tax year.

If you have overpaid tax you can reclaim it and can do so for up to six years after the tax year for which you are reclaiming. But it is for you to reclaim the tax not for the Government to pay you back.

Reclaiming your overpaid tax

If you believe you have paid too much income tax you can apply for a refund. You can do this through your local tax office and it is straight forward. You will need to prove your earnings such as by way of a P60 or P45 from your employer.

Some private companies offer to reclaim the tax on your behalf but then take a cut of any refund that is due often around 20%. We recommend that you do this yourself.

You can find out more by going on the Government website which it has a section student jobs paying tax.

There is also low-income tax reform group that you can look at being LTRG. Which provides help and information to those that can pay for tax and national insurance advice. also has a website that may be able to help you.

National insurance what is it?

In addition to income tax National insurance may also be payable from your earnings. National insurance is a contribution to help pay for the benefits including the state retirement pension.

If you earn paid work between £146.00 and £817.00 per week you will have to pay a national insurance rate at 12% of your earnings. If you earn more than £817.00 per week you pay an extra 2% on top. But this can change from year to year and in different governments and through the budget.

National insurance is the same as it is with tax for students. You must make contributions, but they aren’t deducted from student grants or loans.

You should find that if you have an employer, he will automatically deduct the National insurance from your wages on a weekly or monthly basis depending on how you get paid. He then pays this over to the Government.

We hope that the above is helpful but if you have any queries then the Government websites are useful and helpful, and they will be able to show you what you need to know. Click here to be re-directed.

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