Student tax refunds – are you owed money?
Not sure how much tax you should be paying and think you could be owed a refund? Our step-by-step guide tells you how to work it out and how to get that all-important tax refund.
Tax is confusing at the best of times, but when you're a student working a part-time job at uni it can seem even more mind-boggling.
67% of UK students now work part-time while doing a degree, but many don't know how much tax they should be paying and often end up paying too much. Plus, many are unaware that they could be eligible for a student tax refund if they've overpaid – and they're missing out on £100s!
Reclaiming your cash is easier than you might think, and if you've graduated you haven't missed the boat either. We'll show you how you can claim back overpaid tax in April 2020 from as early as 2015/16.
What’s in this guide?
Do students pay tax?
Although you don't have to pay council tax, students studying full-time technically do still have to pay income tax.
However, there are a few details about the way students tend to work while studying that mean they often pay more tax than they need to.
As a result, millions of pounds of income tax overpaid by students is held by the British government. You could be one of the hundreds of students in the UK that has money left unclaimed, and just imagine what you could buy with that!
What is income tax?
In a nutshell, income tax is the tax deducted from your earnings – so that includes any wages from your part-time job.
If you're paid using PAYE (pay as you earn), your income tax will be deducted automatically. Most part-time jobs will pay you this way, and you'll see how much tax you're paying on your payslip.
If you're self-employed or earn income from any other source, you'll have to complete a self-assessment tax return each year to pay your tax.
Why students commonly overpay tax
There are a few reasons why students usually end up paying more income tax than they need to – often without even knowing it.
The most common situation is that, when starting a part-time job, employers might put you on an 'emergency' or incorrect tax code (PAYE code) if you don't give them a copy of your P45 as evidence of what your tax code actually is.
Students who go on a placement year or work part-time during university also often do so over a period that spans two tax years (tax years run from April to April) – this can confuse things a bit in the eyes of HMRC (Her Majesty's Revenue and Customs – a.k.a. The Tax Man).
Most students don't end up earning over the tax-free personal allowance within a single tax year, but if you choose to work extra shifts at your part-time job during certain times of the year (over the Christmas holidays, for example) you could be totting up full-time hours.
This will likely mean that your earnings in that month, if earned every month for a year, would be enough to take you over the tax-free personal allowance and make you eligible to pay income tax.
This is because HMRC will start taxing you as soon as you're earning above the monthly equivalent of the threshold, even if you don't earn another paycheque for the rest of the year. But don't worry – you can get that money back.
What is the tax-free personal allowance?
By law, you can earn up to £12,500 in a tax year without having to pay any tax on it. The majority of students will pay income tax at a rate of 20% on anything earned above that.
The table below shows how much tax you'll pay based on your income:
Income tax bands in England, Northern Ireland and Wales
|Tax band||Taxable income||Tax rate|
|Personal allowance||Up to £12,500||0%|
|Basic rate||£12,501 to £50,000||20%|
|Higher rate||£50,001 to £150,000||40%|
|Additional rate||Over £150,000||45%|
Income tax bands in Scotland
|Tax band||Taxable income||Tax rate|
|Personal allowance||Up to £12,500||0%|
|Starter rate||£12,501 to £14,549||19%|
|Basic rate||£14,550 to £24,944||20%|
|Intermediate rate||£24,945 to £43,430||21%|
|Higher rate||£43,431 to £150,000||41%|
|Top rate||over £150,000||46%|
This also applies to any income you make working abroad for the summer. As you're a UK resident working abroad on a temporary basis, you pay your tax to the UK rather than the country you're working in. It's a good idea to check in with HMRC before heading abroad to work so this is made clear to them.
As well as income tax, you'll pay National Insurance contributions if you earn above £166 a week.
Unfortunately, you can't claim back overpaid National Insurance contributions, but it's worth knowing that all your NI payments go towards things like the NHS and the state pension, so you'll get your money back eventually!
How to get a student tax refund
Unless you're self-employed (in which case you do your own taxes), your employer controls your tax payments to HMRC. Tax is deducted from your pay each month as PAYE (pay-as-you-earn) – you'll be able to see this from your payslips.
Sometimes HMRC might send you a P800 tax calculation if they think your circumstances have changed and that you might be paying the wrong amount of tax. If they calculate that you're a due a tax refund, they'll either explain how to claim the refund online or send you a cheque.
However, there are no guarantees that HMRC will send you a P800 calculation and you might not want to sit and wait around for it to (maybe) arrive. As complicated as it may seem, it's best to be proactive and do the calculations yourself.
There are a few different scenarios in which you might need to claim tax back – here's how each works:
You've paid too much tax on your pay from your current job
If you're still working but have noticed you're paying too much tax, this is probably due to being on the wrong tax code. Check online what tax code you're supposed to be on.
If you're on the wrong tax code, simply contact HMRC and tell them. If you're due a refund, your employer will give you this refund in your next pay.
Otherwise, at the end of the tax year, your employer will automatically send you a P60 form which shows you how much tax you've paid on your salary in that tax year. This is an easy and convenient way to work out whether you're owed a refund or not.
You've paid too much tax on your pay from a previous job
When you leave a job, your employer will give you a P45 form which tells you how much tax you've paid on your salary for that tax year (they have to supply you with one by law). You can use this form to work out if you've paid too much tax – use the tax calculator to figure it out.
Once you're sure you have overpaid, you might be able to claim online as long as you have your employer's PAYE reference number (this will be listed on your P45) and the details of the taxable income you received in that tax year.
Otherwise, simply call up HMRC and explain why you think you overpaid, making sure you have your National Insurance Number, details of your income and your P45 to hand. They will explain the next steps to you.
You've paid too much tax on your savings interest
While most students won't earn or save enough to be affected, banks will often deduct 20% from your interest automatically so be aware of this! Find out whether you're likely to be affected in our guide to student savings accounts.
Use the tax calculator to see if you should be (or should have been) paying tax on your savings account.
We know it can seem daunting but, when that hard-earned cash lands back in your account, it'll be worth it.
Are you aware of these basic tax facts every student needs to know? Time to swot up – it could save you waiting for a refund.