Ibrahim Gardner
Students in the UK may have to pay taxes on their income, depending on their residence status and whether they are a UK or international student. International students may be exempt from paying UK tax on foreign income or gains if they are being used for course fees or living costs. However, if their living costs exceed £15,000 in a tax year, HMRC may ask for more information. UK students are liable to pay UK tax and National Insurance contributions, with the amount depending on their income.
What tax do students pay in the UK?
| Characteristics | Values |
|---|---|
| Income Tax | Students do not pay income tax on the first £12,570 they earn during the tax year. For amounts between £1,048.01-£4,189 per month, 20% income tax is payable. |
| National Insurance | Students pay National Insurance if they earn over a certain amount. For amounts over £4,189 per month, 2% National Insurance is payable. |
| Foreign Income | Foreign students do not pay UK tax on foreign income or gains if they are used for course fees or living costs. |
| Double Taxation Agreements | Some countries have double taxation agreements with the UK, meaning students do not pay UK tax on their income if they work while studying. |
| Self-Employment | Students working for themselves must register as self-employed within three months of starting work and complete a Self Assessment tax return each tax year. |
| Holiday Jobs | Full-time students with holiday jobs may not need to pay tax through PAYE but will still pay National Insurance if they earn above the weekly threshold. |
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What You'll Learn
Income tax
Students in the UK do not have a special status in the UK tax system and are generally liable to pay tax and National Insurance contributions in the same way as other taxpayers. However, the amount of tax you pay will depend on how much you earn and whether you are a foreign student or not.
Foreign Students
Foreign students are usually exempt from paying UK tax on foreign income or gains as long as they are used for course fees or living costs. This is dependent on the country the income is from having a double-taxation agreement that covers students. HM Revenue and Customs (HMRC) may ask for more information if the relevant amounts exceed £15,000 a year (excluding course fees).
UK Students
If you are a full-time student with a holiday job, you may not need to pay tax through PAYE (Pay As You Earn). However, you will still pay National Insurance if you earn more than the weekly threshold. If you have a part-time job during term time, your employer will handle the paperwork to ensure you don't pay too much tax. You can use the P38(S) form if:
- You are a full-time student in the UK with a holiday job.
- You are returning to full-time education after the holiday.
- Your total income for the year is below the personal allowance.
In the UK, you pay income tax on the money you make when working. However, you must earn above a certain amount to start paying. You will not pay income tax on the first £12,570 you earn during the tax year (this is your personal allowance). After that, the following applies when calculated monthly:
- For amounts between £1,048.01 - £4,189 per month, you will pay 20% income tax.
- For amounts between £4,189.01 - £12,500 per month, you will pay 40% income tax.
- Over £12,500 per month, you will pay 45% income tax.
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National Insurance
If you are a student in the UK and have a job, you may have to pay National Insurance (NI) if you earn over a certain amount. This is separate from Income Tax, which you will also have to pay if you earn over your Personal Allowance.
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 ask your employer for a form P38(S) if the following apply:
- You are a full-time student in the UK, only working during the holidays.
- You are returning to full-time education after the holidays.
- Your total income for the year is below the personal allowance.
If you work in the UK while studying, you will normally pay UK tax and National Insurance. However, if you work abroad for a foreign employer, you will not pay National Insurance in the UK, but you may have to pay foreign contributions. If you work for a UK employer abroad, you will be required to pay National Insurance while abroad.
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Foreign student tax
Foreign students in the UK do not usually pay UK tax on foreign income or gains, as long as they are used for course fees or living costs. Foreign students with a term-time or holiday job may have to pay tax if they work in the UK. The amount of tax paid depends on how much the student is earning.
There are two main types of tax that people pay when working in the UK: Income Tax and National Insurance. For Income Tax, you will not pay any tax on the first £12,570 you earn during the tax year. This is called your personal allowance. After that, the following tax rates apply when calculated monthly:
- For amounts between £1,048.01 - £4,189 per month, you will pay 20% Income Tax
- For amounts between £4,189.01 - £12,500 per month, you will pay 40% Income Tax
- Over £12,500 per month, you will pay 45% Income Tax
Similarly, for National Insurance, you have to earn above a certain amount to start paying. For amounts over £4,189 per month, you will pay 2% National Insurance.
Foreign students should check whether their country has a double-taxation agreement with the UK. If there is an agreement in place, foreign working students do not need to pay tax on any foreign income and gains, such as salary earned back home during a school break or interest on a bank account. Foreign income and gains brought into the UK and spent on education and maintenance will also not be taxed. Additionally, a student will not be considered a resident even if they stayed in the UK for 183 days or more within a tax year, exempting them from paying taxes.
If a foreign student's country does not have a double-taxation agreement with the UK, they will be taxed in the same way as everyone else in the UK. HM Revenue and Customs (HMRC) may ask foreign students to account for their living costs if they are more than £15,000 in a tax year (excluding course fees).
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Tax residence status
In the UK, your residence status determines whether you need to pay tax on your foreign income. Non-residents pay tax only on their UK income, while residents pay tax on all their income, whether it is from the UK or abroad.
Since 6 April 2013, there has been a statutory residence test (SRT) in the UK to determine your UK tax residence status. This means that the rules for UK tax residence are set out in law. The number of days spent in the UK is crucial when determining residence status under the SRT. If you spend fewer than 16 days in the UK in a tax year, you will be considered a non-resident for that year. If you spend 183 days or more in the UK, you will almost certainly be considered a resident for that year.
There are automatic UK tests and automatic overseas tests to determine residence status. If you meet any of the UK tests and none of the overseas tests, you are automatically a UK resident for tax purposes for that year. If you meet none of the automatic tests, you will need to take the sufficient ties test, which considers the number of days spent in the UK and the number of ties you have with the UK.
If you are still unsure about your status, you can use the residence status checker, which will indicate whether you were a UK resident in any tax year from 6 April 2016.
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Self-employed tax
If you're a student in the UK and choose to work for yourself, you'll need to register as self-employed with HM Revenue and Customs (HMRC). This means you'll need to manually pay your tax bill and complete a Self Assessment tax return each year, declaring your income and expenses so that HMRC can calculate how much tax you need to pay.
The Self Assessment tax return must be submitted twice a year, in January and July, and you'll need to pay your tax bill at the same time. As a self-employed person, you'll be entitled to the same tax-free personal allowance as someone in full-time employment. For the 2021/2022 tax year, this was £12,570, meaning you'll only pay tax on income above this amount. However, the personal allowance may change depending on your annual income.
If you're over 16, self-employed, and making a profit of at least £6,515 per year, you'll also need to pay National Insurance contributions. If you're running a limited company, you'll have to pay Corporation Tax, and if you're selling goods, you'll need to submit VAT returns if you earn over the VAT threshold of £85,000 per year.
It's important to keep track of your finances and ensure you have enough money saved to cover your tax bill when it's due. You must register as self-employed within three months of starting work.
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Frequently asked questions
Students are liable to pay UK tax and National Insurance contributions in the same way as other UK taxpayers. However, if you are a full-time student with a holiday job, you may not need to pay tax through PAYE. You will still pay National Insurance if you earn more than the weekly threshold.
You will not pay Income Tax on the first £12,500 you earn during the tax year. This is called your personal allowance.
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 with the UK, you will have to pay tax in the same way as others who come to live in the UK.
