Are Students Taxed in the UK?
If you’re currently residing in the UK and you happen to be studying at a university or college, you might want to know if students are taxed in the UK. Let’s take a look at whether or not students in the UK are taxed and what exactly this means for different types of students.
What is taxable income? Before we can delve into whether students are taxed in the UK, we need to first understand what counts as taxable income and what doesn’t. In most countries, all income that you earn from working (whether it’s from your employer or freelancing) is taxable, but there are some exceptions.
What Is Taxable Income?
Most people think of taxable income as the money they earn from their job. But there are other forms of income that can be taxed, including investment earnings, pensions, and alimony. In the United Kingdom, students are also subject to taxation on their income.
Income tax is not a new concept, but what might surprise you is that even if you’re a student living off student loans, your income will still be considered taxable. Although how much you pay in taxes depends on your level of income and whether or not you have deductions like student loan interest payments or retirement contributions.
What do students have to pay taxes on?
Asides from VAT and sales taxes, there are other ways students are taxed. In the United Kingdom, students do not have to pay taxes on their tuition fees or their maintenance grants. However, they are required to pay taxes on their income from employment. So, if you’re a student in the UK and you have a job, you’ll have to pay taxes just like everyone else.
If you’re employed full-time during term time, your employer will deduct any tax owed from your paycheck every month. However, if you work as a part-time employee or self-employed freelancer during term time (which many students do), then you will be responsible for paying this yourself.
You can pay by either filling out an annual Self Assessment tax return form or by arranging for your employer to take the money straight out of your paycheck for each month that you worked during the year.
Personal Allowance – A Brief Description
The good news is that students are usually exempt from paying taxes on their income. This is because of the Personal Allowance, which is a certain amount of money that everyone is allowed to earn tax-free.
According to UK law, you can earn up to £12570 during a tax year without the need to pay tax. For example, if you have no other sources of income and you have a salary of £12,500 per year, you will not be taxed on any part of your salary. However, if you earn anything above £12570 as a student in the UK, you’ll have to pay 20% of your earnings as income tax.
Common Ways Students Overpay Tax in the UK
One of the most common ways students overpay tax is by not being aware of the many deductions and credits they may be eligible for. Another way students overpay tax is by not keeping track of their expenses throughout the year. This can lead to overpaying taxes when it comes time to file their return.
One of the most frequent occurrences is when you don’t offer your employer a copy of your P45 as proof of what your exact tax code is, they may put you on an “emergency” or incorrect tax code (PAYE code) if you’re on part-time employment.
Another common mistake students make is not filing their taxes on time. This can result in late fees and penalties, as well as interest charges on the unpaid amount. These consequences will only grow more severe if the student doesn’t file within a certain timeframe.
How to Get a Student Tax Refund
Your employer manages your tax payments to HMRC unless you’re self-employed. And the t Tax is withdrawn from your monthly paycheck as PAYE (pay-as-you-earn).
If HMRC believes that your situation has changed and that you may be paying the incorrect amount of tax, they may occasionally send you a P800 tax computation. If they determine that you are entitled to a tax refund, they will either give you a check or explain how to submit an online claim for the refund.
There are no guarantees, though, that you’ll get a P800 computation from HMRC, so it’s possible you don’t want to wait around for them. Even though it could appear challenging, it’s important to be proactive and perform the computations on your own.
Here are two situations in which you could need to file a tax return and how each one works:
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You overpaid taxes on your current job salary
If you’re still employed but have realized that you’re overpaying your tax, then your tax code is likely incorrect. Find out what tax code you should be on by checking online.
Simply notify HMRC that you are on an incorrect tax code by contacting them. If you are entitled to one, your company will give it to you with your subsequent paycheck.
If not, your employer will send you a P60 form at the end of the tax year that details the amount of tax you paid on your earnings during that tax year. This is a quick and convenient way to determine whether or not you are entitled to a refund.
You overtaxed your earnings from your former job
By law, when you leave a job, your employer must provide you with a P45 form that details the amount of taxes you paid for that tax year on your wage. With the tax calculator, you can use this form to determine whether you have paid too much tax.
Provided you have your employer’s PAYE reference number, which can be found on your P45, and the specifics of the taxable income you received during that tax year, you can file a claim online if you’re certain you’ve overpaid.
You also have the option to contact HMRC and let them know why you believe you overpaid. Make sure you have your P45, NIN, and information about your income on hand. They will walk you through what comes next.
Although it might seem difficult, it will be worthwhile when your hard-earned money is returned to your account.
Do International Students in the UK Pay Tax?
The answer is: it depends. If you are working and earning an income, then you will likely need to file a tax return and pay taxes on your earnings. However, if you are only studying and not working, then you may not be required to pay taxes.
Do students that hold US citizenship get taxed in the UK?
They can if they are taking on work as a self-employed person. Taking on “gig” work as a freelancer changes things for anyone that holds US citizenship or a Green Card.
US taxation is based on citizenship, not residency. That means that US citizens living anywhere in the world are subject to US taxation.
The IRS (US Tax Authority) demands a US tax return from any person that earns more than US$400 per year from self-employment income.
In reality, taking on more than £35 of gig work per month would satisfy the requirement to file a US tax return.
The UK and the US have a strong, modern tax treaty to prevent double-taxation, so while US tax returns have to be filed, paying US tax is highly unlikely.
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