Lori Meadows
Many students take on part-time jobs while studying at university, which can be a great way to earn some extra income. However, it's important to understand the tax implications of working as a student. In the UK, you will start paying taxes as soon as your income exceeds the personal allowance threshold, which is currently £12,570 per year. This threshold varies from country to country, so international students should check the rules in their home country as well. Additionally, some countries have double-taxation agreements in place, which means students from those countries may not need to pay UK tax on their income while studying. On the other hand, students who are exempt from paying council tax due to meeting specific criteria set by local councils do not need to worry about this expense. Understanding tax rules is crucial, as the ramifications of breaking tax laws can be severe.
Do university students pay tax?
| Characteristics | Values |
|---|---|
| Student council tax | Students don't have to pay council tax under any circumstances as long as they meet the criteria set out by the local council. |
| Tax on earnings | Students will start paying taxes as soon as they are earning over the personal allowance figure in the UK. |
| Foreign students | Foreign students usually do not pay UK tax on foreign income or gains, as long as they are used for course fees or living costs. |
| Double-taxation agreements | Some double-taxation agreements mean students might not need to pay UK tax on their income if they work while studying. |
| National Insurance | Students with a job will have to pay National Insurance if they earn over the income threshold. |
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What You'll Learn
Foreign students and tax agreements
The UK does not provide any special status to students under its domestic tax laws. Hence, foreign students are liable to pay taxes and make National Insurance contributions like any other taxpayer in the UK. However, foreign students are usually exempt from paying taxes on their foreign income or gains as long as they are used for course fees or living costs. This exemption is subject to certain conditions. Firstly, the country of their foreign income must have a 'double-taxation agreement' with the UK that covers students. Secondly, the exemption only applies if the income is less than £15,000 in a tax year (excluding course fees). If the income exceeds this limit, HM Revenue and Customs (HMRC) may ask for more information and the student may be required to pay taxes on their foreign income.
Some double-taxation agreements also exempt students from paying UK taxes on their income if they work while studying. However, this is not the case for all agreements, and students from countries without such provisions will have to pay taxes on their income in the same way as others who come to live in the UK. Therefore, it is important for foreign students to check the specific terms of the double-taxation agreement between the UK and their country of foreign income.
Additionally, visiting students may qualify for limited exemptions under certain double-taxation agreements with respect to money received for maintenance, education, or research grants. These exemptions may be limited in monetary terms or the number of years they can be claimed. For example, the UK-Finland agreement exempts income brought to the UK for maintenance or education purposes, regardless of the nature of the underlying income or gain. On the other hand, the UK-Philippines agreement allows income earned in the UK to be ignored for tax purposes up to a certain amount each year if it is earned for maintenance or education purposes.
It is important for foreign students to keep records justifying the exemption based on the specific wording of the double-taxation agreement. These records may include information on why the payment was made, why it was remitted to the UK, or why the income was earned.
Furthermore, students from the US should be aware that the US taxes international income earned by its citizens and permanent residents living overseas. Hence, US citizens studying in the UK may have to file taxes in both countries. However, certain provisions, such as the Foreign Earned Income Exclusion and tax credits, can protect US citizens from double taxation.
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Council tax exemption
Students are generally exempt from paying council tax, as long as they meet the criteria set out by the local council. If you are a full-time student, you are likely to be disregarded when it comes to counting the number of eligible adults in a property for council tax purposes. This means that if you live with one other person who is not a full-time student, they will be liable for 75% of the council tax bill. If you live with two or more people who are not full-time students, they will likely be liable for 100% of the bill.
To be considered a full-time student, your course must meet certain requirements. You can check these requirements on the government website, GOV.UK. If you are taking time out from your course, you should still be regarded as a student for council tax purposes, as long as you are still registered and intend to return. However, if you have finished one course and are waiting to start another, you may have to pay council tax during this period.
You can apply for a council tax exemption on GOV.UK. To do this, you may need to complete an online form and provide a 'certificate of student status' or 'student certificate' to prove that you are a full-time student. You can obtain this certificate from your university, usually from the admissions office. Once you have your certificate, you can send it to your local council. Some universities have online systems that can automatically generate and send this letter to the council for you.
It is important to note that council tax exemption for students only applies under specific circumstances. If you are a student entrepreneur or are self-employed, you will still need to pay taxes on your earnings. Additionally, if you receive payments from a foreign country, these may be subject to UK tax if they are not used for food, rent, bills, or learning materials.
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Tax on income
Students are often exempt from paying certain taxes, such as council tax, but they may still be liable for income tax and National Insurance (NI) contributions on their earnings. Income tax is a tax deducted from your earnings, including wages from part-time jobs. The amount of income tax you pay depends on your income threshold. Most part-time jobs will pay you through Pay As You Earn (PAYE), where income tax is deducted automatically and can be seen on your payslip.
If you are self-employed or have other sources of income, you must complete a self-assessment tax return each year to pay your tax. It is important to keep track of your income and payslips to ensure you are paying the correct amount of tax. If you have overpaid tax, you may be able to claim a tax refund. This can occur if you are placed on an 'emergency' or incorrect tax code when starting a new job. International students may also be exempt from paying UK income tax if their country has a double-taxation agreement with the UK.
Students who work part-time during university may span two tax years (running from April to April), which can complicate tax calculations for HMRC. Most students do not earn over the tax-free personal allowance within a single tax year, but working extra shifts during certain times can increase earnings and make you eligible for income tax. Additionally, you will pay NI contributions if you earn above £242 per week or £12,570 per year, which has recently increased to match the income tax personal allowance.
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National Insurance
Students in the UK don't have to pay council tax under any circumstances, as long as they meet the criteria set out by the local council. The majority of students are exempt from paying council tax. However, if you work in the UK while studying, you will normally pay UK tax and National Insurance.
If you earn more than £1,042 per month, you will have to pay income tax. This is known as your personal allowance. If you earn more than £166 per week, you will have to pay National Insurance. Both of these will be deducted through your wages by PAYE (Pay As You Earn). If you do not earn over these amounts, you will not have to pay any income tax or National Insurance.
If you work for yourself, you will need to fill in a Self Assessment tax return each tax year, on which you declare your income and expenses. If you are an international student, you can start working before receiving your National Insurance number if you can prove your right to work in the UK. You can still apply for a National Insurance number even if you haven't secured a job yet.
Some double-taxation agreements mean that you do not have to pay UK tax on your income if you work while being a student. If your country does not have such an agreement, you will have to pay tax like everyone else in the UK. Foreign students usually do not pay UK tax on foreign income or gains as long as they are used for course fees or living costs.
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Tax on self-employed students
Students in the UK do not generally have to pay tax on their income if they are enrolled in full-time education, but there are some exceptions, especially when it comes to self-employment. Even if you are a full-time student, you may still have to pay tax on certain types of income.
If you are a self-employed student, you may be liable to pay income tax and National Insurance contributions on your profits. This includes income from freelance work, such as writing, graphic design, or consulting, as well as any income from a business that you run.
As a self-employed student, it is important to keep accurate records of your income and expenses. You will need to fill out a self-assessment tax return each year to declare your income and expenses to HM Revenue and Customs (HMRC). The tax year runs from April 6 to April 5, and you must submit your tax return by the following January 31.
You may also be able to claim tax relief on certain expenses incurred as part of your self-employed work. This could include things like the cost of travel for business purposes, office equipment, or other business expenses. Keeping accurate records of these expenses will help you when it comes time to file your tax return.
It's worth noting that the rules around tax for self-employed students can be complex, and they may vary depending on your individual circumstances. It's always a good idea to seek professional advice or speak to an accountant if you're unsure about your tax obligations. By understanding your tax responsibilities and staying on top of your paperwork, you can ensure that you stay compliant and make the most of the tax benefits available to you as a self-employed student.
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Frequently asked questions
Students will start paying taxes as soon as they are earning over the personal allowance figure that is representative in the UK at that point.
Foreign students usually do not pay UK tax on foreign income or gains, as long as they are used for course fees or living costs. However, if your country does not have a double-taxation agreement, you will have to pay tax in the same way as others who come to live in the UK.
Students don't have to pay council tax under any circumstances, as long as they meet the criteria set out by the local council.
Your student finance package, any bursaries, grants, scholarships, Child Tax Credits or Disability Living Allowance or any ISA Allowances are non-taxable.
Students can use the UK Government's tax calculator to find out how much tax they will pay on their earnings.
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