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The Low Incomes Tax Reform Group (LITRG) is encouraging students and school or college leavers to check they are not overpaying their taxes.

Introduction

Students often pay too much tax on their earnings. This summer, taking into account the recent abolition of the form which previously allowed students to get paid for holiday work without income tax being deducted at source (the P38(S))1, they may pay even more tax than in previous years. With the academic year just finishing and students taking on holiday work – perhaps for the first time – to save up for college in the autumn, LITRG is encouraging students to check their tax deductions carefully.

Student employment

Many students work to help make ends meet. The often erratic nature of such work, to fit in with studying and exams, can so often leave the tax system struggling to keep up with them.

For example, students might:

• work during their vacations and/or in term time;
• work in several jobs at once;
• frequently move from one job to another;
• do odd agency jobs; or
• do a ‘sandwich’ course, during which they work for a year.
• This means they can pay too much tax and have to claim a refund, even if they are vigilant. There is also a risk that they might not pay enough and be presented later with an unwelcome bill. So it pays for students to make sure they know where they stand.

LITRG recommendation to students

LITRG Chairman, Anthony Thomas, said:

“Students usually have low incomes, but their tax affairs are often more complex than those for people in permanent employment.

“The demise of the P38(S) will affect some students, albeit in dwindling numbers over recent years as increasingly students have to work in term time as well as vacation to help finance their studies.

“A new group of students will now be leaving school, college or university and looking for work – perhaps only for the summer until returning to their studies in the autumn, or perhaps leaving to look for permanent work after finishing their studies.

“LITRG encourages students to take a very close interest in their tax affairs at an early stage. They should carefully check their PAYE coding notices and payslips to make sure as far as possible the right tax is being taken from them and contact HMRC if they are unsure or think something is wrong.

“Many students will earn less than their personal allowance of £9,440 for the current tax year overall, yet suffer tax deductions along the way. An early adjustment of PAYE codes by contacting HMRC and providing estimated income figures could prevent them paying too much and having to claim it back at the end of the year which is time consuming and unhelpful to maintaining a sensible cash flow.”

Useful information

From 6 April 2013, the ‘Real-Time Information’ operation of PAYE came into effect, and along with it the withdrawal of the form P38(S) previously available to students who worked only in their vacations, which enabled them to get their wages paid without income tax deduction at source. This means standard PAYE applies to all students and increases the likelihood of needing to claim back tax at the end of the year.

More information on how to claim overpaid PAYE can be found here.

In association with the National Association of Student Money Advisers’ “Student Money Week” earlier in 2013, LITRG also produced a ‘tax quiz’ for students to help them understand the basics and when they might be overpaying.

More guidance for students on checking their PAYE codes and contacting HMRC if they are wrong can also be found here.