Janice Lozano
Many students take on part-time jobs while studying at university, which can provide a useful source of income as well as an opportunity to develop new skills. However, students with jobs may be required to pay income tax and National Insurance (NI) contributions if their earnings surpass a certain threshold. This applies to both foreign and local students working in the UK, although there are some double-taxation agreements that exempt international students from paying UK taxes on their income. Students working for a UK employer abroad may still be liable for UK tax and NI, while those working for a foreign employer may not pay UK NI but might be subject to tax contributions in the country they are working in.
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What You'll Learn
Income thresholds for tax and NI
Students who work during their holidays may not need to pay tax through PAYE, but they will still pay National Insurance if they earn more than the weekly threshold. Students with part-time jobs during term time cannot use form P38(S). Their employer will take care of the paperwork to make sure they don't pay too much tax. If a student thinks they've overpaid their income tax, they can use the student tax checker to see if they can get a refund.
If a student works for themselves, they will need to fill in a Self Assessment tax return each tax year, declaring their income and expenses. This allows HM Revenue and Customs (HMRC) to work out how much tax they need to pay. They must register as self-employed within three months of starting work.
If a student normally lives and studies in the UK but works abroad during the holidays, they will still count as a UK resident for that tax year and will be liable for UK tax on anything they earn abroad above the personal allowance. However, if their overseas employer also taxes them, and they are unable to claim tax back directly from the foreign authorities, they will probably be able to claim a deduction or credit in the UK.
In the UK, the basic rate of income tax is 20% and is paid on annual earnings between £12,571 and £50,270. The higher rate is 40%, paid on earnings between £50,271 and £125,140. Once an individual earns more than £100,000, they start losing the £12,570 tax-free personal allowance. They lose £1 of their personal allowance for every £2 that their income goes above £100,000. Anyone earning more than £125,140 a year no longer has any tax-free personal allowance. An additional rate of income tax of 45% is paid on all earnings above £125,140 a year.
The NI rate on income and profits above £50,270 remains at 2% for all workers. The main rates of NI and income tax are not increasing, but many people will pay more tax overall because the points at which people start paying or move to higher rates have not increased with inflation.
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Holiday jobs and term-time jobs
If you are a student with a holiday job or a term-time job, you may need to pay Income Tax and National Insurance, depending on how much you earn and whether you are a full-time student. Your employer will usually deduct Income Tax and National Insurance from your wages through Pay As You Earn (PAYE). If you've paid too much tax, you may be able to claim a refund.
If you are a full-time student in the UK with a holiday job, you may not need to pay tax through PAYE, but you will still pay National Insurance if you earn more than the weekly threshold. You can ask your employer for a form P38(S) if you are a full-time student, only working during the holidays, returning to full-time education after the holidays, and your total income for the year is below your Personal Allowance.
If you have a part-time job during term time, you cannot use form P38(S) for your holiday job. Your employer will handle the paperwork to ensure you do not pay too much tax. If you think you have overpaid your income tax, you can use the student tax checker to see if you are owed a refund.
If you work for yourself, you are responsible for sorting out your tax and National Insurance. You will need to fill in a Self Assessment tax return each tax year, declaring your income and expenses. This allows HM Revenue and Customs (HMRC) to calculate how much tax you need to pay. You must register as self-employed within three months of starting work.
If you live and study in the UK but work abroad during the holidays, you will still count as a UK resident for tax purposes. You will need to pay UK tax on any income above your Personal Allowance. If your overseas employer also taxes you and you cannot claim this back from foreign authorities, you may be able to claim a deduction or credit in the UK.
Some double-taxation agreements mean you do not pay UK tax on your income as a student. If your country has such an agreement in place, you will not need to pay UK tax.
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Working for a UK employer vs. foreign employer
If you are a student with a job in the UK, you will have to pay Income Tax and National Insurance if your earnings exceed a certain amount. This is true whether you are a UK or foreign student. If you are a full-time student with a holiday job, you may not need to pay tax through PAYE, but you will still pay National Insurance if you earn more than the weekly threshold. You can use a form P38(S) to ensure you do not pay too much tax.
Now, when it comes to working for a UK employer versus a foreign employer, there are a few things to consider:
Working for a UK employer:
If you are working for a UK employer, they are responsible for operating PAYE (Pay As You Earn) tax and National Insurance contributions for you. This is true even if you are working remotely from another country. If you are a UK resident working for a UK employer, you will generally pay UK tax and National Insurance on your earnings.
Working for a foreign employer:
If you are working for a foreign employer, the tax implications can be more complex. If you are working in the UK for a foreign employer, you may still be liable for UK tax and National Insurance contributions if you meet certain criteria, such as spending 183 days or more in the country during the tax year. However, if your employer does not have a presence or place of business in the UK, they may not be obligated to withhold tax from your salary. In this case, you may need to set up a direct collection scheme to pay your taxes. Additionally, if you are working remotely for a foreign company, there may be questions about your employment status, and you may need to prove that you are a contractor rather than an employee to avoid tax complications.
In summary, working for a UK employer generally means that your tax and National Insurance contributions are more straightforward, as your employer handles these for you. With a foreign employer, you may need to take more responsibility for ensuring your taxes are paid correctly and may need to seek expert advice to navigate the complexities of expatriate taxation.
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Self-employed students
If you are a self-employed student, you will need to register as self-employed within three months of starting work. You will also need to fill in a Self-Assessment tax return each tax year, declaring your income and expenses. This allows HM Revenue and Customs (HMRC) to work out how much tax you need to pay.
As a self-employed student, you will pay tax and National Insurance in the same way as other self-employed people. You will need to pay Income Tax and National Insurance if you earn over a certain amount. This amount is called the personal allowance. You will also need to pay tax on any income you earn abroad if it is above the personal allowance. However, if your overseas employer also taxes you and you are unable to claim this tax back from the foreign authorities, you may be able to claim a deduction or credit in the UK.
If you have student loans, you will repay these through the tax system, just like with income tax and National Insurance. This will come out automatically, so there is no separate assessment system to go through. If you are studying full-time, you will start repaying your loans in the April following the end of your course, but only once your earnings go above the required threshold. The threshold will depend on where you took out your loan. For example, if you took out your loan in Scotland or Northern Ireland, you will start to pay off your loan once your annual earnings exceed £19,390. If you took out your loan in England or Wales, the threshold is £21,000 per year.
It is important to make sure you don't fall behind on your student loan payments and that you submit your Self-Assessment tax return by the 31st of January each year to avoid fines or penalties.
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Tax on scholarships and grants
In the UK, scholarships, fellowships, and bursaries awarded to students in full-time education are typically exempt from income tax. This is outlined in Section 776 of the Income Tax (Trading and Other Income) Act 2005 (previously Section 331 of the Income and Corporation Taxes Act 1988). The exemption applies regardless of who provides the scholarship and the recipient's age, as long as the scholarship is used for a course at a recognised educational institution. However, certain situations may cause a scholarship to be treated as taxable income. For example, if the scholarship is provided by an employer or relative's employer, and there is an employment relationship with the recipient or their relative, the scholarship may be taxable.
Research grants may be subject to tax, especially if the research benefits the grantor or if the recipient is not officially a student. According to HMRC's Statement of Practice 4/86, when a student receives payment for services such as teaching or research as part of their course, the payment can be split into two parts: a tax-free scholarship portion and taxable employment income. The distinction depends on whether the services performed by the student are mandatory or optional for their course.
Fellowships, a type of grant typically awarded to postgraduate students or academic researchers, usually exempt recipients from teaching or other duties, allowing them to focus on their studies or research. These are generally considered non-taxable sources of income.
If you are a student with a job, you may need to pay income tax and National Insurance if your earnings exceed a certain threshold. This applies to both term-time and holiday jobs, as well as foreign students working in the UK and UK students working abroad during holidays. However, some double-taxation agreements may exempt you from paying UK tax on your income if you work while studying.
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Frequently asked questions
Yes, if you are a student in the UK and have a job, you will have to pay Income Tax and National Insurance if you earn over a certain threshold. This threshold is £1,042 a month for Income Tax and £166 a week for National Insurance.
Yes, international students are required to pay National Insurance contributions if they earn over the income threshold. They will need to apply for a National Insurance number once they arrive in the UK.
If you work abroad during the holidays, you will still count as a UK resident for tax purposes and will be liable for UK tax on anything you earn above your Personal Allowance. However, if your overseas employer also taxes you, you may be able to claim a deduction or credit in the UK.
Yes, if you think you have overpaid your tax, you can use the student tax checker to find out if you could be owed a refund. When you leave your job, you may also be entitled to reclaim tax by filling in a P85 form and sending it to your Tax Office.
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