Should You Be Paying Income Tax?

If you are a student and you have a part-time or holiday job, you may be required to pay some income tax.  However, not everyone pays income tax and, if you have paid some tax, you may be due a tax refund.

Here is our three step guide to working out whether you should be paying income tax as a student.

Work out your taxable income

To work out whether you should pay tax, you need to work out your total income for the tax year (6 April to 5 April).  Your taxable income includes income from part time employment, savings and investment interest, pensions, rent from property and from other employee benefits you may receive.

Work out your tax-free allowances

Once you have worked out your total taxable income you should then work out what tax-free allowances you are entitled to.

Everyone in the UK is entitled to their personal allowance – the amount of money you can earn before you have to pay tax.  In the 2011/12 tax year, the personal allowance is £7,475.

There are other tax-free allowances that you may be entitled to claim if you are registered blind or if you are over the age of 65.

Work out if you are a taxpayer

Now you have worked out your taxable income and your tax free allowances, you should deduct your tax allowances from your taxable income.

If there is nothing left, you should not be paying tax and you may be due a refund if you have already paid some tax.  If there is a surplus amount, you should be paying income tax on this amount.

Worked examples

Example 1

You are a student and you only work during the holidays.  Your total income from this work in the most recent tax year was £5,000 and you have no earnings from any other source.  You have paid £250 in tax.

• Your total taxable income is £5,000
• Your total tax allowance is £7,475 (your personal allowance)
• You therefore should not be paying tax and may be able to claim a refund of the £250 tax you have paid

Example 2

You are a student and you have a part-time job.  Your total income from this job in the last tax year was £9,000 and you have paid no tax.

• Your total taxable income is £9,000
• Your total tax allowance is £7,475 (your personal allowance)
• You should be paying tax on £1,525 of your income (£9,000 minus £7,475) at the current rate of 20 per cent. This means you owe £305 in tax

You should contact HM Revenue and Customs if you’re not paying tax when you should be.  Additionally, if you think you are due a tax refund, get in touch with your Tax Office.