Student holiday jobs: it’s pay tax now and reclaim later, after rules change

Students taking short-term holiday jobs this summer face paying income tax and national insurance after a little-known change in the tax rules a few years ago, accountants have warned.

Those starting temporary jobs as waiters, bar staff, cleaners and fruit pickers in the coming days face being taxed as any other worker if they earn more than £987 in a single month, tax advisers Blick Rothenberg said this week.

Previously, low-earning students could declare their student status and be paid tax free. Now they face having to pay the tax then reclaim it, with all the hassle that this entails.

This is the case even though most students will almost certainly be earning less, over the year, than the £11,850 personal threshold – the amount at which a person starts paying income tax.

The amount of money students are paid this summer largely depends on where they are in the country. They have to receive the minimum wage – £5.90 an hour for 18- to 20-year-olds, or £7.38 an hour for those aged 21 to 24. However, the rates offered will, for some students, be significantly higher – particularly in London and the south-east.

Those doing bar jobs in central London, for example, are being offered about £8 an hour by decent employer pubs. Supermarkets pay between £7 and £8 an hour to junior staff manning the tills or stacking shelves. Meanwhile, temporary receptionists – another student staple – typically receive £7.85 to £8.50 an hour outside the M25, or £12 an hour in London, where the job is organised by temp agencies.

Agencies supplying waiting staff for functions and hospitality events typically pay £7 an hour but these jobs often have the added benefit of paying handsome tips.

Yadvinder Rihal, employment taxes manager at Blick Rothenberg, explains: “When a student is employed over the holiday period – even though they are in full-time education – there are now no special procedures. Employers must treat them in exactly the same way as any other employee, including their eligibility for pensions auto-enrolment.”

He says that previously HMRC had a procedure whereby a student would complete a declaration advising it, and the employer, that they were in full-time education and would not be exceeding the personal allowance over the tax year. Employers would then not be required to deduct tax.

Now, he says, there is a considerable confusion about this among both employers and the students. “With the introduction of real-time tax reporting this old system was abolished. It means if you have a job when you’re a student you have to pay income tax if you earn more than £987 a month on average – this is your personal allowance – and national insurance if you earn more than £162 a week. Your employer will deduct income tax and national insurance from your wages through Pay As You Earn.”

A student earning £8 an hour and working a 35-hour week would exceed this threshold if they worked the full month, meaning they will be taxed, albeit not very much.

Any student who earns less than £11,850 – once any term-time work is added to summer earnings – during the tax year, can claim it back in April. “If you’ve paid tax and stopped working part way through the tax year you may be able to claim a refund by contacting HMRC,” says Rihal. “HMRC may require you to set up a personal tax account in order to process the refund. This can be done online.”


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