Tax on student jobs

As we hit each holiday period loads of students will be looking to make a bit of extra money. That will for many mean taking on a job. And hopefully that will be a job with an employer who wants to adhere to the tax rules.

Where any employee has a part-time job in addition to other employment then no matter how little they earn the employer must deduct 20% basic rate tax. Only if HMRC instructs them otherwise can the employer operate a different tax code.

Where an employee – be it part-time, temporary or full-time – is going to earn more than £102 per week (or £442 per month if paid monthly – all 2011/12 rates) then not only may tax be an issue but so is National Insurance certainly is. NIC is paid on lower levels of income than tax. Both will have to be deducted from the pay.

For non-student staff, employers should have a form P46 signed by staff. The various boxes which can be ticked will confirm to the employer and the tax office whether the employee at this job:

1. Is taking up their first job since leaving education

• Regards this as their only or main job.

• Receives income from a pension as well as from this job.

If the employee has another job then they may well be ticking none of the boxes. As a result the employer will tax their pay at 20%. Assuming the person’s other job gets the benefit of the personal tax allowance through a tax code then this 20% tax on the second job should be correct.

Now the question is how does an employer deal with a student? Here there are special rules which can be used to the benefit of the student. By having them sign a special form – called P38(S) – the employer can avoid deducting tax from the student’s pay. This applies even if on a given week the student will earn more than £100.

To view the form you can check online at www.hmrc.gov.uk/forms/p38s.pdf

For reasons best known to HMRC the online form can be printed, but must not be used for a student.

This form states the name of the school or college the student attends. It also shows their name, address, date of birth and National Insurance number. The student is signing a certificate that in the whole tax year to 5 April 2012 (for example) their income FROM ALL SOURCES will not exceed £7,475.

At the end of the tax year the employer enters the total paid to the student in the year. They then retain the document for 3 years in case required by the tax office.

You should note that this P38(s) form can mean no tax being taken off the student. Sadly it does not affect National Insurance. If pay exceeds £102 per week (£442 for monthly paid) then the employer must deal with National Insurance. Above £102 in a week and this will include taking some NIC off the poor student. National Insurance deducted like this cannot be refunded, unlike tax – see below.

I came recently to ask a student to sign this form and found that I could not. It was September and the student had left school but not yet started university. The form required a signature that the student is ‘attending’ a particular school or college. They had left one but not started another, yet. So in cases like that the P38(S) cannot be signed.

If a student loses tax in a year over and above what their tax bill for the year is then they can apply for a tax refund from the tax office. It is important to keep payslips and forms P45 or P60 to prove what tax has been deducted. If they don’t get payslips they should keep a diary of their income from all jobs.

A lot of wages departments are unaware of the existence of forms P38(S). If you are a student seeking a part-time job, or already in one then it is in your interest to download a copy of the form and present it to your employer on day one. This can avoid you losing tax needlessly.