Personal Taxpayer Series IR60. Students and the Inland Revenue. How we can help you

Transcription

1 Personal Taxpayer Series IR60 Students and the Inland Revenue How we can help you

2 We produce a wide range of leaflets, booklets and helpsheets each designed to explain different aspects of your tax or National Insurance in plain English, and to assist with the completion of tax returns. Most of them are free, and most are also available in Welsh. Some you might find useful are IR34 PAYE. Pay As You Earn IR41 Income tax and job seekers P/SE/1 Thinking of working for yourself IR56 Employed or self-employed? A guide for tax and National Insurance SA/BK8 Self Assessment. Your guide CA01 National Insurance contributions for employees CWL2 National Insurance contributions for selfemployed people IR90 Tax allowances and reliefs IR110 A guide for people with savings COP1 Putting things right when we make mistakes DPTC/BK1 Your guide to Disabled Person s Tax Credit WFTC/BK1 Your guide to Working Families Tax Credit We have a full range of services for people with disabilities, including leaflets in Braille, audio and large print. For details, please ask your local Inland Revenue office or Enquiry Centre Our leaflet COP1 Putting things right when we make mistakes tells you more about the standard of service you can expect from us. It also tells you the steps you can take if you want to make any comments on the service you receive, or complain about the way your tax affairs have been handled. Our IR List Catalogue of leaflets and booklets gives further information about our publications, most of which you can get from any Inland Revenue Enquiry Centre, Tax Office or National Insurance Contributions Office. Addresses are in your local telephone book under Inland Revenue. Most offices are open to the

3 public from 8.30am to 5.00pm, Monday to Friday, and some are also open outside these hours. Social Security offices, your library or Citizens Advice Bureau may also have copies of our leaflets. You can also get most of our leaflets by calling our Orderline on between 8.00am and 10.00pm, seven days a week (except Christmas Day) by fax on by on saorderline.ir@gtnet.gov.uk by writing to PO Box 37, St Austell, Cornwall PL25 5YN. Many leaflets are also available on the Internet at When our offices are closed, you can get general advice on Self Assessment by calling our Helpline, in the evenings or at weekends, on Helpline and Orderline calls are charged at local rates.

4 Contents What this leaflet is about 1 How do I contact the Inland Revenue? 2 Tax and National Insurance contributions - what are they and when do I pay them? 3 What to expect when you are working 8 Working Families Tax Credit and Disabled Person s Tax Credit 16 How will my Student Loan be collected? 16 Complaints and feedback 17 Income tax rates

5 What this leaflet is about As a student you may want to know something about the deductions that are made from your wages when you work. This will help you ensure that you don t pay more tax than you need to and help you to understand how National Insurance contributions relate to benefits such as Jobseekers Allowance. You may also be able to claim tax credits available for people who work, for instance, Working Families Tax Credit for students with children. In this leaflet we explain what tax and National Insurance contributions are what will happen if you work during term time or in the holidays what happens if you leave your job and how to get refunds of tax if you have paid too much what tax credits are how we ll collect your student loan when you leave higher education how to get more help from us. 1

6 How do I contact the Inland Revenue? If you have any queries on your tax position while you are working, your employer will normally be able to tell you the address and telephone number of the Tax Office you should contact. You may have some recent correspondence from a Tax Office showing the address, telephone number and reference. Look in your local phone book under Inland Revenue for your nearest Inland Revenue Enquiry Centre or Tax Office. Visit our website officesmenu. You can contact us by telephone by letter in person. We will be happy to explain anything you find confusing and give you any forms or leaflets you may need. Telephone Service Most switchboards in Tax Offices are open Monday to Friday from 8.30am to 5.00pm and many offices provide a telephone service outside these hours. Opening Hours Most Inland Revenue Enquiry Centres (Tax Offices with visitor facilities) are also open Monday to Friday from 8.30am to 5.00pm and some are open outside those hours. 2

7 Do I need to give a reference number? If we hold any tax records we can find them under your National Insurance (NI) number, so it would be helpful for you to have it handy when you contact us. It will look like this JX B By the time you are 16 you should have received your NI numbercard automatically from the Inland Revenue National Insurance Contributions Office. If you do not know your number or can t find your card contact your Tax Office so that your number can be traced. Tax and National Insurance contributions - what are they and when do I pay them? What is income tax? Income tax is one of the ways in which people contribute towards Government spending. Everyone who earns or receives income over a certain amount in the tax year pays income tax. Generally, the more you earn the more you pay. If you work for an employer, he or she will usually take the tax from your earnings each payday and pass it on to the Inland Revenue. This is known as the Pay As You Earn (PAYE) system. This collects tax automatically and saves you having to pay tax in one go at the end of the year. Your employer knows how much tax to deduct each payday because the Tax Office will have issued you and your employer with a PAYE code. The PAYE code tells your employer to start to deduct tax from your earnings over an amount set by the code. When you start work for the first time, or start a new job when you 3

8 have previously worked but do not have a P45, your employer will use a temporary code until the Tax Office issue your proper one. What are National Insurance contributions (NICs)? Most people who work must pay National Insurance contributions (NICs). These help you to build up entitlement to benefits like Jobseeker s Allowance, Incapacity Benefit and the State Retirement Pension. You do not have to pay NICs if you are unemployed or if your income is below a certain level (see page 5). If you work for an employer your NICs are normally collected at the same time as your income tax each payday. Your employer is responsible for collecting your contributions and will deduct them from your pay. If you are self-employed you will be responsible for paying your NICs yourself. Will I have to pay income tax on all the money I receive as a student? No. Some of the financial support you receive is not taxable. The following are not taxable. Student loans. Grants. Contributions from your parents. Most scholarships. Most research awards. Housing Benefit. Most gifts and loans from relatives. Income from ISAs. Prizes won by students for academic excellence. If you are not sure, ask your Tax Office for help. (See page 2.) 4

9 So what types of income are taxable? You may have other income during the year that is taxable. The most common forms of taxable income are earnings from full or part-time work, including tips and bonuses any income from self-employment (if you work for yourself) dividends from shares in a company (see page 8) interest from most National Savings accounts (see page 7) interest from savings with a bank or building society (see page 7) Jobseeker s Allowance (JSA). What do I pay National Insurance contributions on? You will only have to pay NICs on income that you earn. The most common examples are earnings from full or part-time work any income from self-employment. Do I have to pay tax on all my taxable income? No. Everyone can receive a certain amount of income in each tax year on which no tax has to be paid (the tax year starts on 6 April and finishes on the following 5 April). This is called the personal allowance ( 4,615 in ). If your taxable income is more than your personal allowance, you should only pay tax on the difference. If you have paid tax and your total taxable income for the year doesn t go above your personal allowance, you may claim a refund. You can even do this during the tax year if your income for the tax year is likely to remain below your personal allowance. 5

10 If you think you have paid too much tax ask your Tax Office for a repayment claim form. You may be able to claim other allowances such as Children s Tax Credit (see leaflet CTCR/1) or Blind Person s Allowance (see leaflet IR170) that further reduce the amount of tax you need to pay. We give more information about these and other allowances in our leaflet IR90 Tax allowances and reliefs. Will I have to pay National Insurance contributions on all my earnings? There is a Primary Threshold (PT) which is the point at which NICs start to be paid by an employee. The PT for 2002/03 is 89 a week and this means that you do not pay NICs on the first 89 a week ( 385 a month) of earnings. However, you will start to build up entitlement to contributory benefits if you earn 75 a week ( 325 a month) in 2002/03. This is the Lower Earnings Limit (LEL) for NICs and you will be treated as having actually paid contributions on your weekly earnings from 75 (the LEL) up to and including 89 (the PT). NI contributions 2002/03 pa month pw Lower Earnings Limit (LEL) 3, Primary Threshold 4, Upper Earnings Limit (UEL) 30,420 2, National Insurance rates (Standard) Between Primary Threshold and UEL 10% 10% 10% 6

11 Will I have to pay National Insurance contributions on all my income from self-employment? If you are self-employed there are two types of NICs that may be paid depending on your level of earnings or profits. We will send you full details when you register as self-employed. You can do this by calling the Helpline for the newly self-employed on We will then set up the arrangements for you to pay tax and NICs and send you our guide Starting Up In Business. You can also access this online at Information on self-employment can be found in leaflet P/SE/1 Thinking of working for yourself?. What about income received from savings and shares? So far as bank and building society interest is concerned, tax at 20% is normally taken off before you get it, but you can claim back tax if you have overpaid. If you are sure that your total taxable income will be less than your tax allowance (see Do I have to pay tax on all my taxable income? on page 5) you can arrange for your interest to be paid without tax taken off by completing a simple form (R85) available from your bank or building society. Our leaflet IR110 A guide for people with savings has more information about this. If your income changes and you now expect to exceed the amount you can receive without having to pay tax, you should write to your bank or building society telling them to cancel the arrangements and to start deducting tax from your interest. 7

12 If you own shares in a company, you may receive income called dividends. Dividends are treated as if they were paid to you with tax already taken off. However, you cannot claim this back even if your income is very low. No NICs are payable on interest paid on savings or dividends as they are not earnings. What to expect when you are working Some students work in the holidays only, while others also work in term time. There are slightly different tax arrangements for each and these are explained below. These systems should help you pay the right amount of tax, over the course of the tax year. What happens if I work during term time and/or in the holidays? If this is your first job, your employer should give you a form P46 to complete. This will enable your employer, following our instructions, to decide what tax should be due from you. Your employer sends us this form after your first payday and we check to see if the tax deducted is right. In order to do this we often need your help and will send you form P91 to complete. It is important that you complete and return this form to help ensure you do not pay too much tax. Alternatively, if you have worked before or claimed Jobseeker s Allowance, you should have been given a P45, when you left the job or stopped claiming, which you should hand to your new employer to enable tax to be deducted. If, however, you do not have a P45 you should simply tell your new employer you do not have one, and your employer will give you a P46 to complete. 8

13 Your employer may then deduct tax on each pay-day, under a system called Pay As You Earn (PAYE). PAYE is designed to ensure that most people pay the right amount of tax over the tax year. However, it can sometimes deduct too much tax if your earnings vary from one month to another or if you have more than one job at the same time. If you have paid too much tax, you will be able to claim it back (see page 15). If you earn enough to pay NICs your employer will deduct NICs alongside PAYE. What should I do if I work only during the holidays? If you think that your total taxable income in the whole of the tax year is likely to be less than your tax allowance (see Do I have to pay tax on all my taxable income? on page 5) and you are only intending to work during the holidays you should mention this to your employer when you start work and ask for a form P38(S) which your employer can get from the employer orderline fill in and sign the form and give it back to your employer to complete. Your employer should then pay you without deducting tax. If your total income in the holidays is likely to be more than the amount of income you may receive before paying tax, you will have to pay tax on the difference between the two amounts. You will need to complete a form P46, which your employer will give you. Your employer will then deduct tax on each payday. Whatever form you fill in, if your pay is more than 89 a week or 385 a month in 2002/03 your employer will also deduct NICs. 9

14 Example 1 As a student you take a 10 week summer holiday job on 200 per week. You have not worked before in the tax year (which begins on the 6 April in one calendar year and ends on 5 April in the next) and you do not think that your total taxable income in the tax year will exceed your personal allowance for the year of 4,615. In these circumstances you need not pay any tax through PAYE on your 2,000 earnings. To avoid having tax deducted you should ask your employer for a P38(S) when you start your job. You should complete the form and return it to your employer who should then pay you without deducting income tax. Your employer will still deduct NICs on any earnings over 89 a week. Example 2 When you start university in October you already have a part-time job earning 50 per week. You intend to continue this job for the foreseeable future. In the summer, you find a full time job, with a different employer, for 10 weeks of the holidays earning 200 per week. You also intend to work with this new employer for two weeks at Christmas again at around 200 per week. As you already have a term time job, you cannot fill out form P38(S) for the holiday jobs (see What happens if I work during term time and/or in the holidays? on page 8). Your employer will not deduct NICs in your parttime job as you earn below 89 per week from that job. You will pay NICs on your earnings in your summer and Christmas jobs as you earn over 89 per week in them. 10

15 What if I want to work for myself (become self-employed) while I am a student? Leaflet P/SE/1 Thinking of working for yourself? provides information on self-employment. If you are self-employed you must register with us. You can do this by calling the Helpline for the newly selfemployed on We will then set up the arrangements for you to pay tax and NICs and send you our guide Starting Up In Business. You can also access this online at If you are self-employed you will need to complete a Self Assessment tax return. See leaflet SA/BK8 Self Assessment. Your guide. See also on page 14 for details or the records you should keep. Suppose I work abroad? If you intend to work abroad, and would like information about your tax and NICs, you can contact the Centre for Non-Residents helpline on from the UK or, from outside the UK, dial the international code then What if I am a student from abroad? How your earnings are treated for tax and NICs will depend upon a number of factors. If you would like further information you can contact the Centre for Non-Residents helpline on from the UK or, from outside the UK, dial the international code then to make sure you don t pay too much tax. 11

16 What happens if my employer pays for me to attend college? If your employer releases you to take a full-time educational course, including a sandwich course, at a college, university or similar external educational establishment your pay may be treated as exempt from income tax (but still subject to NICs) where the following conditions are satisfied. You are enrolled for at least one academic year and your actual full-time attendance during that period amounts on average to at least 20 weeks a year. Your pay, including lodging, subsistence and travelling allowances, but excluding any fees payable by you, does not exceed the higher of 7,000 a year (or the equivalent monthly or weekly rates) and the rate of payment which an individual in similar personal circumstances would have received as a grant from one of the public awarding bodies on a scale fixed by the Secretary of State for Education and Skills (for example a studentship from one of the Research Councils). If you want to know more about this ask your Tax Office or campus welfare adviser. Example 3 Your employer pays for you to attend college. Your course starts in September and finishes the following June. During this time you have vacations lasting two months when you work for your employer. Your employer pays you 570 a month while you are studying at college. You get the same rate of pay of 570 a month for working for your employer during the vacations. 12

17 Your monthly income while at college is less than the exemption limit of a month ( 7,000 divided by 12) and is therefore not taxable although you will pay NICs each month. Your income from working during the vacations is taxable even though it is within the exemption limit. The exemption only applies to income when attending college. If your employer pays you more than the exemption limit of in any month while you are at college the whole of that month s income would be taxable and none of the exemption would apply. What happens if I take a year out working during my course of study? If while you are a student you spend a year out in PAYE employment as part of your study arrangements, you are just like any other employee for tax and NICs purposes. It is very likely that your year out will straddle 5 April and fall in two tax years. You are entitled to a personal allowance for both years. Example 4 As part of your four-year course you spend year three out in PAYE employment. You start work for a year in September and had not worked since the Christmas before. You earn 750 a month. Between September and the following 5 April you will earn 5,250 ( 750 for 7 months) which will be more than the personal allowance so you will pay some tax as well as NICs. Between 6 April and the end of August you will have 5 pay days earning a total of 3,750. Although this amount is below the personal allowance for the whole tax year you will have paid some tax as well as NICs because the personal allowance is normally 13

18 spread over the whole tax year. So you will need to ask for a refund if you don t work again before the following 5 April (see What should I do when I leave my job? Can I reclaim any tax I think I ve overpaid? on page 15). What happens if I claim Jobseeker s Allowance (JSA) while I m unemployed? JSA is not normally available to students, but it can be claimed in some circumstances. If you have a form P45, give it to the Jobcentre when you first make a claim. If you don t have one, ask to fill in a form P187 at the Jobcentre. No tax will be deducted from your JSA. Our leaflet IR41 Income tax and job seekers tells you more about the taxation of JSA. You do not pay NICs on JSA. What paperwork should I keep? To avoid having to pay too much tax and to support any requests for refunds it is a good idea to keep any payslips any P60 or P45 forms you are given any other income records - for example, interest or share dividend statements. These should be kept for about two years from the date of receipt. If you are self-employed there is helpful guidance about what business records to keep in our guide Starting Up In Business. We will send you the guide once you register with us as self-employed. You can also access this online at 14

19 What should I do when I leave my job? Can I reclaim any tax I think I ve overpaid? It is important to get a form P45 from your employer. If you don t go to another job and do not intend to receive any further taxable income in the tax year or claim taxable benefits in that year, you may be entitled to a tax repayment from the Inland Revenue once you leave. Ask your Tax Office for a repayment claim form P50. Or you can ask the Tax Office to review your position at the end of the tax year to see if a repayment is due. Will I qualify for benefits because I have paid some NICs? There are various qualifying conditions for different contributory benefits. Generally one of these conditions is that you have paid contributions in a number of recent tax years. As a guide, for a tax year to be a qualifying year for benefit purposes you will need to have paid contributions on earnings of a least 52 times the Lower Earnings Limit in the tax year (see page 6). For 2002/03 this is 3,900, but this amount will change each year as the Lower Earnings Limit changes. So if, for example, you work and earn 75 or more for each week in a tax year, or 2,000 a month for just two months in the summer, the year would be a qualifying year for benefit purposes. For further information or advice you can contact your Tax Office. For details of contributory benefits see leaflet MG1 A guide to benefits available from your local Society Security office or visit 15

20 Working Families Tax Credit (WFTC) and Disabled Person s Tax Credit (DPTC) If you have children and work for 16 hours a week or more - or if you have a partner who works - you may be eligible for WFTC. Call the Helpline on or Textphone for more information or see leaflet WFTC/BK1 Your guide to Working Families Tax Credit. If you are disabled you may be eligible for DPTC if you work for 16 hours a week or more. Call the Helpline on or textphone for more information or see leaflet DPTC/BK1 Your guide to Disabled Person s Tax Credit. How will my Student Loan repayments be collected? If you have taken out an Income Contingent Student Loan (a loan taken out for the academic year 1998/99 or later) whilst studying, you will have to start repaying your loan from the 6 April after you leave full-time education. The amount of the repayments is dependent on your income. You only have to make repayments on earnings over 10,000 a year, at a rate of 9%. So, if your monthly earnings go above or 192 if weekly paid - your employer will make loan deductions from your pay for that period under the PAYE system. If you earn below these amounts in any month or week, no deduction should be made from your pay. 16

21 Example 5 You are paid monthly Step 1 Earnings in the month 1, Minus pay threshold Balance Step 2 Multiply excess 417 by 9% Step 3 Round down to nearest pound to give Student Loan deduction of If you are self-employed the loan repayments will be calculated as part of your Self Assessment return. They will be calculated on your income for the year and will be included in the balancing payment for that year. There is full guidance with the Self Assessment pack that we will send you annually once you registered as self-employed (see page 7). You can get further information about Student Loan repayments from the Student Loans Company by calling between 9.00am and 5.30pm Monday to Friday or visiting their website Complaints and feedback We deal with many millions of enquiries and calculations each year and errors and misunderstandings can happen. We promise, however, to deal with complaints quickly and effectively. Our leaflet COP1 'Putting things right when we make mistakes' explains our complaints procedure. You can get the leaflet from any of our offices or visit our website at If you have a complaint we recommend that you first contact the individual you have been dealing 17

22 with, or if you prefer you can write to the person in charge of the office or unit that you dealt with. His or her name is on every letter we send out. In our experience, most issues are settled quickly and satisfactorily in this way. We aim to continually improve our services and we welcome your feedback. Income tax rates Tax rates and allowances pa month pw Income tax allowances Personal allowance (under 65) 4, Rates of income tax Individuals 10% 4,615 to 6, to to % 6,535 to 34, to 2, to % Over 34,515 Over 2,876 Over

23 Our service commitment to you The Inland Revenue and Customs and Excise are committed to giving you the best service we can by acting fairly and impartially We treat your affairs in strict confidence, within the law want you to pay or receive only the right amount due. communicating effectively with you We aim to provide clear and simple forms and guidance accurate and complete information. providing good quality service We aim to handle your affairs promptly and accurately be accessible keep your costs to the minimum help customers with special needs be courteous and professional. taking responsibility for our service We publish our customer service aims and achievements annually want to hear from you if you wish to comment, or complain, so we can improve our service. We advise you how to do this. We can provide better service if you help us by keeping accurate and up-to-date records letting us know if your personal or business circumstances change giving us correct and complete information paying on time. Further information on customer service is available at Inland Revenue and Customs and Excise local offices, set out in our Charters, complaint leaflets and Codes of Practice.

24 These notes are for guidance only and reflect the tax position at the time of writing. They do not affect your right of appeal. Issued by Inland Revenue Marketing and Communications June 2002 Crown Copyright 2002 Printed by The Astron Group 06/02 NSV Code R2P 3211