Students overpaying income tax make the government richer every year – here’s how you to claim your hard-earned cash back.
Living costs continue to creep up for students, whilst the student loan stays pretty much stagnant, and as a result nearly 70% of UK students now work part-time whilst doing a degree.
But many students who do work whilst studying end up overpaying their income tax, and are unaware that they could be eligible for a student tax refund.
Going about reclaiming your cash is easier than you might think, and don’t think just cause you’ve graduated you’ve missed the boat – you can claim back tax you’ve overpaid from as early as 2012/13 in April 2017.
The student tax conundrum
Whilst you will get student council tax exemption if you’re studying full-time, students do still have to pay income tax.
However, there are a few details about the way that students tend to work whilst studying that often result in them paying more than they’re meant to.
As a result, millions of pounds of income tax overpaid by students is held by the British government. You could be one of the hundreds of students in the UK that has money left unclaimed. Just imagine what you could buy with that!
Why students commonly overpay tax
There are a few reasons why students often end up paying more income tax than they need to – and without even knowing it.
The most common situation is that when starting a part-time job, employers will often put you on an ’emergency’ or incorrect tax code (PAYE code) if you don’t give them a copy of your P45 as evidence of your tax code.
Students who go on a placement year or work part-time during university also often do so over a period that spans two tax years which can confuse things a bit in the eyes of the HMRC (HM Revenue and Customs aka the tax man).
Most students don’t end up earning over the tax-free personal allowance of within a single tax year (which runs April – April), but if you choose to work extra shifts at your part-time job during certain times in the year (over the Christmas holidays, for example) you could be totting up full time hours.
In this case, the tax man thinks your earning more across the whole year than you are, and will tax you accordingly… but you get it back!
What is the tax-free personal allowance?
By law, you can earn up to £11,500 in a tax year without having to pay any tax on it. You’ll pay income tax at a rate of 20% on anything you earn above that.
This also applies to any income you make working abroad for the summer. As you’re a UK resident working temporarily abroad, you pay your tax to the UK tax man rather than the country you’re working in. It’s a good idea to check in with the HMRC before heading abroad to work so this is clarified to them.
As well as income tax, you’ll pay National Insurance contributions if you earn above £155 a week.
Unfortunately, you can’t claim back overpaid National Insurance contributions, but it’s worth knowing that the purpose of you paying NI is to go towards you getting a state pension when you retire, so you’ll still get your money back eventually!
How to get a student tax refund
Unless you’re self-employed (in which case you do your own taxes), your employer controls your tax payments to the HMRC.
The tax is deducted from your pay each month as PAYE (pay-as-you-earn) – you’ll be able to see this from your pay slips.
At the end of the tax year, the HMRC will automatically send you a P800 tax calculation, and reimburse you with any tax you’ve overpaid. Therefore, in this case you don’t need to do anything!
However, if you’re a keen bean and don’t want to wait around for your P800 (or you think some of the info on your P800 is incorrect), you can also make a claim yourself at any time of the year using a P50 form.
Tax on savings accounts
It’s worth knowing that if you have any cash stowed away in a savings account, the interest you earn on this will also count towards your personal allowance (this doesn’t apply to ISAs – they’re tax free).
Whilst most students won’t earn or save enough to be affected, banks will often deduct 20% from your interest automatically so be aware of this! More info here.
Use our free tax calculator to see if you should be paying tax on your savings account.
Claiming if you’ve already left your job
To begin your application for a tax refund, you’ll need to get your P45 from your previous employer (they have to supply you with one by law).
Then, use the information on the P45 to work out whether you have indeed paid too much tax (use our tax calculator to find out).
Once you’re sure you have overpaid, download a P50 form. Fill this out and send it – along with parts 2 and 3 of your P45 – to HMRC (keep part 1 as a personal copy).
Claiming if you’re still working
If you’re still working but have noticed you’re paying too much tax – probably due to being on the wrong tax code – simply contact HMRC and tell them. They’ll advise you from there.
Good luck!
Are you aware of these 6 basic tax facts every student needs to know? Time to swot up – it could save you waiting for a refund!