A Monthly Publication

IF YOU THINK THAT TAX AND NATIONAL INSURANCE ARE NOT RELEVANT TO YOU, THINK AGAIN, AND READ ON . . . . . . . . .

Many students who have a job mistakenly believe that they do not have to pay Income Tax and National Insurance (NIC).  This is a common misconception.

· How much are you earning?

Everybody can earn a certain amount before they become liable to start paying tax.  This amount is known as one’s personal allowance and currently stands at £6475 for the tax year to 5 April 2010.  Similarly, you are only liable to start paying NIC when you earn, currently, above £110 per week which is the earnings threshold.  If you exceed these thresholds, Income Tax and NIC will be deducted from your wages by your employer under what is known as Pay As You Earn (PAYE).

· Holiday jobs

If you are in full-time education and just have a holiday job you may not need to pay tax under PAYE (but could still be liable for NIC if you earn more than the weekly earnings threshold).

You should ask your employer for a Form P38(S) if you meet all of the following conditions:

- you’re a full-time student in the UK, only working in the holidays; and,

- you’re returning to full time education after the holidays; and,

- your total income for the year is below the personal allowance.

However, you cannot use Form P38(S) just for your holiday job if you have a part-time job during term time as well.

· Working abroad in the holidays

You will also be liable for UK tax on anything you earn abroad above the personal allowance if you normally live and study in the UK, as you are classified as UK resident for tax purposes.  Please be aware that your employer overseas may also deduct tax before paying your wages.  If you are not able to claim this back directly from the foreign authorities, you will, more than likely, be able to claim a deduction or credit back in the UK.

· Working for an employer

Whether it be on a temporary, casual or part time basis, by law your employer must:

- deduct tax and NIC from your wages if due

- deduct student loan repayments, if relevant

- give you a payslip

- give you a Form P60 tax summary at the end of each tax year if you are still working for that employer as at 5 April

-    give you a Form P45 when you leave.

· More than one employer?

Your tax code (which determines how much tax you pay) will reflect this fact.  Usually your personal allowance will be used against the pay from your main job.  Your other job(s) will be taxed at the basic rate of tax (possibly the higher rate, depending upon your income).

· Cash!

You can be paid in cash, as long as the relevant PAYE deductions have been made by your employer.  However, please be aware that it is illegal for your employer to pay you cash in hand without making the relevant deductions when they should have been due.  If you accept money in this way you put yourself at risk of having to pay the Tax and NIC yourself.  Furthermore amongst other things you could lose your employment rights as well as the right to some benefits.

· Employment rights

Remember that all employees have rights whether they are full-time, part-time, temporary or casual.  You are entitled to:

- holiday pay

- national minimum wage

- protection from discrimination.

· Student loan repayments

For student loans taken out after August 1998 the earliest that your repayments will start is 6 April after you leave your course.  Your income needs to be £15,000 per annum (£1,250 per month or £288 a week) before these repayments will kick in.  The amount to be paid back is usually 9% of your income over the starting limit.  However, if you’re working and receive more than £2,000 interest a year from savings this could impact upon how much you have to repay.

· Overpaid tax through your job

There may be circumstances where this occurs, such as:

- only being employed for part of a tax year

- starting a new job and being put on an “emergency” tax code

- a student working in the holidays only, who did not complete a Form P38(S)

- your tax code is incorrect.

If you need help to reclaim PAYE overpayments for this year or any previous tax years, please contact either myself, Claire Elston FCCA or Kate Gigg FCA and we will be pleased to advise you.  Or, indeed if you wish to discuss any of the points raised in this article please call Dianne, the practice administrator on 01485 534800 who will make an appointment for you to call in and see one of the team.

Caution:  This newsletter article is produced for guidance only and should not be used as a substitute for professional advice.  Accordingly, no liability for any loss or damage can be accepted by Kathryn Gigg Chartered Accountants or other contributors, as a result of any person, company or other organisation acting, or refraining from acting, upon comment made in this article.

© Kathryn Gigg 2009