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► Income Tax
Income tax is the contribution from workers to Government spending, and is used to pay for services such as the National Health Service, education, defense, social security and law and order. If you earn over a certain amount of money per year you will need to pay income tax.
The more you earn, the more you pay.
Tax is not paid on student grants (where applicable), student loans, most research awards, scholarships or housing benefit.
The employer usually deducts income tax from students wages, and the amount deducted will appear on their wage slip, probably entitled ‘PAYE’, which stands for Pay As You Earn. The employer will pay the tax directly to the Inland Revenue.
The tax year runs from 6th April to 5th April each year.
Students are not exempt from Income Tax, however, everyone receives a personal allowance, which is shown to the employer in the form of a code so that they know what your personal allowance is.
The amount will vary according to circumstances, but the standard personal allowance for a single person in the tax year 2007-2008 is £5,225. This means that if you earn less than £5,225 per year you will not need to pay income tax.
What income do you pay tax on?
- Taxable income:
- Earnings from full or part time work, including bonuses and tips
- Profits from business
- Dividends from shares in a company
- Interest from National Savings Investments
- Interest on bank or building society savings
- Job Seekers Allowance
Non-taxable income:
- Student grants
- Student loans
- Most scholarships
- Most research awards
- Housing benefit
When you begin your employment, you need to fill in a tax form to ensure your employer does not deduct too much tax. The type of form will depend upon the circumstances.
P45 – you will be given one of these when you leave employment. If you have a P45 from a previous employer you will need to fill this in and give it to your new employer, otherwise too much tax may be deducted. Make sure you do not lose this form as copies are not available.
P46 – fill this in if you have not previously worked in the current tax year. If you secure more than one job you should again ask for a P46 but do not tick any of the boxes at the top or sign the declaration.
P38 – if you are planning to work in the vacations only and you know your income will not exceed the personal allowance you can ask to sign a P38 to stop tax being deducted. However, if you intend to work during term-time you should not fill in one of these forms, even if you are not going to reach your personal allowance threshold.
If you pay tax but do not reach your personal allowance in the tax year, or only go over a bit but have paid tax on all earnings, you should ask the tax office for a rebate form.
If you require more information about tax issues obtain leaflet IR60 or contact the local tax office.
Contacts:
The information in this fact sheet is provided in good faith, but no warranty can be made for its accuracy. No liability is accepted for any loss or damage resulting from any defect or inaccuracy in this information.
© Crown copyright 2007
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