A Guide To Student Tax

While you’re spending your student years learning the fine art of adulting, the chances are you’re spending a fair bit of cash as well. Maybe you’re pulling a few hours of work to keep yourself ticking over. The thing is, if you don’t know the basics of the UK’s tax system, you’re probably missing out – and possibly messing up. Getting your tax wrong can start as a sharp pain in the back pocket, but it’ll quickly escalate to a major headache if you let it get out of hand. Here’s a quick guide to tax for students to keep things as painless as possible.

How does UK tax work?
Do students pay tax?
Can I claim a tax refund?
Tax for different types of students

Volunteering, interning training
Common tax questions
Busting the jargon

How does UK tax work

Whether you work part-time around your studies or do some temping or casual work in the holidays, when there’s money coming in Her Majesty’s Revenue and Customs (HMRC) wants to know about it. If you’re working for an employer, then you’ll usually have tax taken off your pay through the Pay As You Earn (PAYE) system. Under PAYE, HMRC basically swipes a slice of your cash directly from your employer before you get it. It’s a pretty simple system when it works properly, but there are a few wrinkles that can see you paying more than you should.

When you’re your own boss, things are a little different. HMRC won’t necessarily chase you for every penny you make selling things online or whatever. If you’re making over £1,000 a year, though, the taxman will probably decide you’re running a business. That means you’ll have to register yourself as self-employed and start filing Self Assessment tax returns every year. Basically, HMRC will want to hear about all the money you’ve got coming in and going out of your business. You’ll only be taxed on your profits, so the cash you splash just to stay afloat can often bring down your total tax bill. Self Assessment comes with a set of deadlines to hit and rules to obey. The penalties for getting it wrong can be pretty nasty, too, so always go in with your eyes open.

There are other kinds of tax as well, like the Value Added Tax that gets lumped onto most of the things you buy or Council Tax you pay on the value of your property. For most students, though, it’s Income Tax that trips them up, so it’s really worth getting comfortable with the system early.

What about national insurance?

National Insurance isn’t exactly a tax, but it’s still pretty much collected like one. It’s used by the government to cover the costs of things like state benefits and pensions. If you don’t keep your payments up, for instance, then you might find yourself out of luck (and pocket) when you hit State Pension age. Employed people pay Class 1 NICs, again collected by their employers. Self-employed people pay Class 2 (flat weekly rate) and Class 4 (based on profits) NICs.

Beyond England

Another quick thing to keep in mind is that tax systems aren’t necessarily always going to be the same through the whole UK. Scotland, for example, has had its own Income Tax scheme since 2017. The rates and thresholds it sets are different from England’s. Wales can also partially set its own rates, by essentially lowering the amount of tax the UK government collects, but adding in a Wales-only tax rate on top. In practice, so far, it makes no difference to the total tax paid, but that could change in the future.

Do students pay tax?

Sadly, the answer is a resounding yes! Depending on your situation, you could find yourself paying a few different kinds of tax as a student. Here are a few examples:

Income Tax

We’ve already talked a bit about this above but, even when you’re a student, when there’s money coming in the taxman wants his share. What you pay depends on what you earn in a year:

The standard UK rates for 2019/20 are:

Personal allowance (up to £12,500): 0%
Basic rate (£12,501-£50,000): 20%
Higher rate (£50,001-£150,000): 40%
Additional rate (over £150,000): 45%

If you’re sharp-eyed, you’ll spot that you can actually earn a fair bit of cash before you start paying any tax on it. The Personal Allowance is the tax-free chunk of your earnings, and at £12,500 for the 2019/20 tax year it means that a lot of students won’t have to pay Income Tax at all! Again, though, that doesn’t mean that HMRC won’t dip its fingers into your pocket. Remember we talked about National Insurance? Well, here’s what that looks like:

Class 1: 12% on income from £166 to £962 a week. 2% on anything over that.
Class 2: £3 per week if your profits are £6,365 or more.
Class 4: 9% on profits between £8,632 and £50,000. 2% on anything over that.

Tax on savings interest

This is still broadly lumped under Income Tax, but it’s worth mentioning separately. Students are usually in the Basic Rate tax bracket, and the rules say that means they can earn up to £1,000 of savings interest tax-free a year. When people earn enough to pay Higher Rate tax, that allowance drops to £500 a year (still using the figures for 2019/20).

VAT

Not everything you buy is eligible for VAT. When it is, the tax is simply lumped into the price tag so you don’t have to do anything (other than decide if you can still afford it). If you’re running your own business, you sometimes have to register for VAT and start charging it to your customers. You can then claim back the VAT you’re paying on some of your business costs. You won’t need to bother about this until you’re earning over £85,000 (as of 2019/20), so for most students it won’t be an issue.

Council Tax

Council Tax is charged on pretty much all UK properties, from mansions to caravans. It’s based on the value of the property, but there are some important rules for students to understand:

If everyone living at the property is a full-time student, no one has to pay Council Tax.
Halls of residence are usually exempt from Council Tax.
In properties where not everyone’s a full-time student, those who are won’t have to pay.
Part-time students can sometimes claim a reduction in their Council Tax, depending on their circumstances and where they live.

Student Loans

Okay, so you won’t actually pay tax on your loan as if it were income, but the chances are you’ll be paying it off through the tax system. Again, there’s a threshold involved – meaning you won’t have to pay any of your loan back if you don’t earn enough to qualify. The threshold depends on the kind of loan you’ve got.

For 2019/20:

Plan 1: £18,935
Plan 2: £25,725

As for how you’ll be making those repayments, it all depends on the way you pay your normal tax. If you work for an employer, you use PAYE. If you’re self-employed, it’ll be in your Self Assessment tax returns. Some people might actually be both, meaning they’ll have to use both systems. They won’t end up paying double, though. The payments made through PAYE count against your Self Assessment tax.

Postgraduate loans are slightly different. For these, you start paying once your earnings hit £21,000, and on other income over £2,000 a year that you’re declaring via Self Assessment.

Can I get any tax credits or benefits?

The Universal Credit (UC) system doesn’t really care if you’re a student or not. You’ll still have to meet the normal criteria to qualify for it. If you’re studying full-time, you’ll need to fit one of the following descriptions to claim:

You’re 21 or under in full-time, “non-advanced” education (up to A-level equivalent), with no support from your parents.
You’re responsible for a child (included adopted or fostered children).
You live with a partner who’s eligible for Universal Credit.
You’ve hit Pension Credit age and live with a partner who hasn’t.
You’re disabled and getting Personal Independence Payments, Disability Living Allowance, Attendance Allowance or Armed Forces Independence Payments.

If you only study part-time, you might still be able to qualify for UC. There are a few other hoops to jump through, though, like being available for work. Either way, if you’re earning money while you’re a student, it can bring down the UC you can claim. That’s worked out based on the income you’re making minus a fixed amount to allow for expenses.

You apply for UC online, and you’ll be expected to provide some basic information about yourself and your circumstances (contact details, banking and financial information, etc.). You might have to ring up to book an appointment with a “work coach” - and won’t get your UC if you miss it!

Can I claim a tax rebate?

Tax rebates are a really tricky area, which is why so many people decide to get professional help with them. The basic idea is that when you have to spend money to do your work, some of your costs can be used to bring down your tax bill. That said, the regulations are complicated, and you can get into serious trouble if you mess up. Not claiming back everything you’re owed is painful enough. Claiming too much is a whole lot worse once HMRC catches on.

What's a tax refund?

There are a lot of reasons why you might be owed some tax back, but the main one is generally work expenses. Travel to temporary workplaces, repair and replacement of any essential gear and a whole range of other everyday costs can build up into a decent tax refund claim.

When HMRC works out the tax you owe, it assumes you’re working regularly throughout the year. If you’re a student doing casual or short-term work, though, you could end up paying too much tax. Basically, a holiday job could see you only being paid for a couple of months, but charged a whole year’s worth of tax. Worse yet, you’re probably still under your Personal Allowance for the year, so you shouldn’t have been taxed at all!

Luckily, whatever the reason you’ve paid too much, you can claim a tax refund to settle up. You can generally check your tax and claim your refund online - but again, a lot of people prefer to get professional help. Claiming refunds properly means keeping track of a lot of paperwork, from the official documents you get from your employer to receipts and invoices for your expenses. You can find the official tax checker here: https://www.gov.uk/check-income-tax and the refund tool here: https://www.gov.uk/claim-tax-refund.

Tax for different types of students

When it comes to the tax you owe, your circumstances can make all the difference. Not every student is in the same situation, so the key to getting it right is figuring out exactly what the taxman expects from you. Here are some examples:

International students

If you’re from overseas and get yourself a job while studying in the UK, things can be pretty complicated. If you pass the various tests to be a “UK tax resident”, you’ll probably find yourself eligible for UK tax and NICs. Depending on your situation, though, you might still be eligible for the UK Personal Allowance – which would probably mean you won’t end up paying any actual tax. If you do, you might be able to claim it back when you leave the country by filling in a P85 form.
Some countries have “double taxation” agreements to make sure that you don’t get taxed twice on the same money. Again, though, this stuff can get tricky, so it might be worth getting professional advice so you always know exactly where you stand. The UK Council for International Student Affairs can be a good starting point.

UK students studying abroad

Working while you’re studying overseas means getting to grips with two sets of tax systems. On the one hand, you’ve got to keep HMRC up to date and happy. On the other, the country you’re studying in might have specific rules to watch out for. As far as the UK taxman’s concerned, it again comes down to whether or not you’re a UK resident for tax purposes. For example, if you spend under 16 days in the UK during a tax year, you’re unlikely to wind up paying any UK tax on your overseas income. However, the full rules are a little more complex than that, depending on:

How much time you’re spending in the UK.
Whether you pass the Automatic Overseas or Automatic Residence tests.
Whether you have “sufficient ties” to the UK to class as a resident.

Just like foreign students studying in the UK, you’ve got to watch out for things like double-taxation traps. It’s easy to get this stuff wrong if you’re not used to it, and it can end up costing you.

Volunteering, interning and training

Doing volunteer work while you’re studying can be a great way to get real-world experience and training. A lot of students decide to take a crack at this, to boost their chances of landing a related job after graduation. Typically, with volunteer work, you won’t be getting paid. That means no worries from the taxman, but also doesn’t help much with paying your bills. If you’re being paid at all, though, HMRC will want to know about it. If all you’re getting is your expenses reimbursed, then things are pretty simple. Otherwise, you’re looking at actual, taxable income (but remember your tax-free Personal Allowance).

Depending on how your work’s set up, you might be classed as employed, self-employed or purely a volunteer. It’s important to get this straight from the outset, as your employment status can make a real difference when you’re doing things like claiming benefits or tax credits. Voluntary work without pay won’t trip you up on these, but other circumstances can.

You may also find yourself on a training contract, or being “sponsored” by an employer. A training contract basically just means that an employer’s offering some kind of training as part of the work you’re doing. If this involves you getting any costs paid for courses, travel or other necessities, then those are tax-free. It makes no difference whether your employer stumps up for them directly or reimburses you.

While you’re on employer-sponsored training, your pay usually still counts as normal for tax and NICs. However, there’s a wrinkle in the rules for people whose employers let them take a break from work to study. It’s called Statement of Practice 4/86, and means that employers can sometimes pay to support you while you’re studying. In those cases, the payments you get won’t be taxed. You have to be studying full-time for at least a year to qualify, and to put in at least 20 weeks of study in the year. As of 2019/20, your employer can pay you up to £15,480 tax-free. Your tuition fees are handled separately from your day-today costs like accommodation and travel. They’re still exempt from tax, though, as long as the course you’re taking is related to your work.

There’s another side to this coin to think about, of course. If you’re a student on a work placement as part of your degree, you may or may not be getting paid. In fact, there’s no technical obligation for employers to fork over a penny. Even if you are getting some cash, you won’t be legally entitled to the National Minimum Wage. On the other hand, you’ll still be counted as a student for this time, so won’t be paying Council tax either. The bottom line is that, unless your income falls under one of HMRC’s exemptions or allowances, it’ll be taxed as normal.

Mature students

For the most part, mature students are treated more or less the same as anyone else who works while studying. However, it’s worth pointing out a few things that might make a difference to what you pay and qualify for. If you stopped working part-way through a tax year to begin your studies, for instance, you might be able to claim back some of the PAYE tax you’ve paid. Also, in that situation you should put a little thought into what’s happening to your National Insurance contributions. Taking a break from working can cause major headaches down the line with your State Pension entitlement. To keep your NICs rolling, you can make voluntary Class 3 contributions to stop your studies interfering with your eventual pension.

Other circumstances - like studying while bringing up a family, can affect your tax situation. You might qualify for things like National Insurance credits or Universal Credit, for example. Always check what you qualify for when you’re making decisions about how you work and study.

Disabled students

There’s a range of allowances and other help available to students with disabilities. The Blind Person’s Allowance (BPA), for instance, works like a top-up to your tax-free Personal Allowance if you’re blind or partially sighted. The rules vary a bit, depending on where in the UK you live, but the basic BPA for 2019/20 comes to £2,450, meaning you can earn that on top of your Personal Allowance before you start to pay tax.

Another boost to students with disabilities is the Disabled Students Allowance (DSA). This is a grant, meaning you don’t need to pay it back or count it as income for tax. If you don’t finish your course, you might still have to return it, though. What you can get and how you get it depend on your specific needs and the type of course you’re on (full-time, part-time, postgraduate), but there are 3 basic parts to the DSA, covering:

General expenses
Any specialized equipment you need
An allowance for a non-medical helper

Part-time vs full-time students

In general, you’re taxed in the same ways whether you’re a part-time or full-time student. However, if you’re studying part-time you might well have other obligations and opportunities that juggle your tax situation around. We’ve already talked about students with family responsibilities, for instance. Similarly, you might find you’ve got time for more than one job around your studies. This can get a bit messy, since HMRC will classify one of your jobs as your “main” one. That’s the one your Personal Allowance will apply to. If your main job pays less than your Personal Allowance, you can end up losing out, since your other job will be taxed from the very first penny it pays. Tax code problems are among the main reasons why people pay too much tax, so it’s important to check your code to make sure it’s correct.

Common tax questions

What about money I get that isn't ''earned'' - like gifts from family?

The taxman likes to be kept up to date on any income you’re earning, but he’s not some crazed stalker prying into every aspect of your private life. Gifts from your parents or friends, student loans and grants don’t count as taxable income in HMRC’s eyes. The same goes for bursaries, scholarships and so on.

Is property income like rent taxable?

Yes. If you’re renting out a room while you’re studying, then the taxman will want his bite of it. As always, any Personal Allowance you’re entitled to applies. You’ll probably end up filing Self Assessment tax returns to account for the income. However, depending on what you’re renting out, you might be able to use the Rent a Room scheme. Under Rent a Room, you can earn up to £7,500 tax-free a year from renting out furnished accommodation in your main home. Rent a Room is simpler for most people than working out their expenses in their tax returns. As long as you qualify for it, it can be a decent way to score some extra income.

Does pay from apprenticeships get taxed?

Apprenticeships are a lot like training contracts, in that you’re working primarily to learn a trade or set of skills. However, apprenticeships are paid positions. That means you’ll be taxed through the PAYE system. Depending on how long your apprenticeship lasts, you might find yourself claiming back some PAYE tax from HMRC (if it’s less than a full year, for instance). Also, unless your employer’s paying or reimbursing all your expenses (travel to temporary workplaces, tool/equipment repair, and so on), you might be owed some tax back for those, too.

What's emergency tax?

If your student job’s the first toe you’ve dipped into the taxman’s world, there’s a potentially nasty trap you need to watch out for. If HMRC doesn’t have enough information to issue you a PAYE tax code, your employer might lump you with an emergency one. In practice, it’s not really as bad as it sounds. It just means you’ll only be entitled to your basic Personal Allowance. For most people, that’s all they’d probably get anyway. However, an emergency code is bad news if you ought to be getting any allowances or tax reliefs - like the Blind Person’s Allowance, just to pick an example.

UK tax: busting the jargon

Blind Person's Allowance (BPA): A special allowance for blind and partially sighted people. It essentially means you can earn more money before you start paying tax.

Class 2 NICs: Fixed, weekly National Insurance Contributions paid by the self-employed.

Class 4 NICs: Another NIC paid by self-employed people, this time on their profits.

Coding Notice: A letter from HMRC explaining what your tax code is and how it was calculated.

Council Tax: The local tax of England, Scotland and Wales, based on value of a property. In Northern Ireland, you pay Rates instead.

HMRC: Her Majesty's Revenue & Customers. The taxman, dealing with tax and tax reliefs, National Insurance and so on.

Income Tax: The taxman's portion of your earnings.

National Insurance Contributions (NICs): Payments to HMRC to stock up your entitlement to things like benefits and the State Pension.

National Insurance Number: The number HMRC uses to identify you for state benefits and the National Insurance system.

National Minimum Wage: The lowest hourly rate that UK employers can legally pay you, assuming you qualify for it.

P45s: A form showing how much PAYE tax you've paid in the tax year. You'll get one from your employer when you stop working for them.

P60s: An end-of-year certificate showing all the taxable income you've made and the PAYE tax and National Insurance you've paid on it. Also includes details for your student loan repayments.

Pay As You Earn: The basic system for taxing employed people in the UK. Employers deduct Income Tax and National Insurance from your pay and send it to HMRC directly.

Personal Allowance: The amount you can earn before you start paying Income Tax.

Personal Savings Allowance: The amount of interest you can earn on your savings before you start paying tax on it.

Residence: Where your main home is considered to be for tax purposes. Your tax residence can make a difference when you're working abroad for example.

Self Assessment: The tax return system for self-employed people. It's also used by other kinds of people to report any additional untaxed income they've got coming in.

Self-employed: People who set up their own business rather than working directly for an employer.

Student Loans: Money from the Student Loan company that you typically gradually pay back once you start earning a certain amount.

Tax band/bracket: Income tax is divided into bands. Once you earn enough to break through into a new band, any remaining income is taxed at a higher rate.

Tax Code: A series of numbers and letters that describes your Personal Allowance and any special circumstances that affect the tax you pay.

Tax Refund: Money you claim back from HMRC when you've paid too much tax. Usually requires keeping good records.

Tax Relief: A way of bringing down your tax bill, if you qualify for it. Certain types of business expenses can qualify you for tax relief, for example.

Tax Return: A form listing your income, expenses and various other financial circumstances. Used to work out the tax self-employed people (and some others) owe, and to claim certain refunds, reliefs and benefits.

Tax Year: The tax year runs from the 6th April to the 5th April the following year.

Unique Taxpayer Reference (UTR): A number HMRC uses to identify you for anything to do with your tax situation.

Universal Credit: A single benefit that lumps together a range of older ones. Designed to be simpler than the old system, which featured a lot of individual benefits for things like childcare costs, housing and income support.

Value Added Tax: A tax on the products and services you buy, rather than income you earn.

Need more help?

Wondering if you can claim a tax refund or need to submit a tax return? Use our online tools to find out if you're owed money by HMRC.

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A Guide To Student Tax​