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I am a student at university. How can I be paid wages without paying tax?
(Prepared on 11 November 2004)

(If you are a student on a course outside of the UK but working in the UK during your holidays, see Students on courses abroad, below.)

There is a common misconception that students can be paid wages without paying any income tax. This is not true. If you are a student, your earnings are liable for income tax and National Insurance contributions (NICs) in exactly the same way as any other employee.

However…

Every employee is entitled to a personal allowance, i.e. an amount of earnings in a tax year that is not subject to income tax. We call it your “tax-free pay” (see What does my tax code mean?). During the tax year that starts on 6 April 2004, you are entitled to £4,745 of tax-free pay.

Normally an employee receives a portion of that tax-free pay on each payday throughout the year. For example, an employee who is paid weekly receives about £91 of tax-free pay each week. That arrangement applies equally to students who do paid work during both term time and holidays.

A special arrangement applies to students if they only work during their holidays from college or university, i.e. during the Easter, summer and Christmas breaks. If you are in this situation and you do not do any paid work during term time, the Inland Revenue allows you to have all of your tax-free pay “up-front” rather than in instalments. The concession is made because you are unlikely to earn more than £4,745 during your holidays in the tax year. It avoids the need for you to reclaim tax from the Inland Revenue at the end of the tax year.

This means that, if you can sign a legal declaration that you meet certain very specific conditions, your employer can pay you without deducting tax from your wages. Your employer should give you a form P38(S) to complete. The conditions for using this arrangement, as printed on this form, are as follows:

1. You must be a student and give the name of the school, college or university that you are attending.

2. You will be attending that school, college or university until after the end of the current tax year.

3. You do not have any employment during the tax year other than during your holidays. That refers to employment with any other employer, not just the one for whom you are currently working during your holidays.

4. Your total earnings for the tax year from the employer for whom you are completing the form, and from any other employer, and from any other source, and any Jobseekers Allowance paid for unemployment, will not exceed £4,745.

Therefore, you may not use this arrangement if

* your course ends before the end of the current tax year, e.g. in the summer holidays following the completion of your course, or

* you do paid work of any kind, including self-employment, during term-time, or

* you know that your earnings from all sources will exceed £4,745 for the tax year.

When making the declaration on form P38(S), you will have to provide your national insurance number, your date of birth and your home address. You must sign and date the declaration.

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Originally posted by stuartmitchell
474L for me too

I didnt think students were meant to get taxed at all because were "learning" full time

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Originally posted by Cavey
Yeah i'm 474L

Getting a nice £450odd back from mr. tax man in the next few weeks too hopefully

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