A University Student’s Guide to Tax Refunds

Students who are working whilst studying are subject to income tax, but in some cases, they may be overpaying without even realising. 

Tax can be a word that worries everybody, and even more so if you are a student living on a budget. It’s often the case that students pay too much income tax and are due a refund. In this guide, we’ll discuss why that might be the case and how you can apply for a refund on any money you are owed. 

What is income tax?

If you earn money from a job or via other sources of income, you’ll have to pay tax. Income tax essentially describes the amount that is deducted from your earnings and paid to the government. 

Most working students will likely receive PAYE (pay as you earn) which means your income tax will be automatically deducted. For every payslip you receive, the amount of income tax you are charged will be outlined and the amount you pay will depend on how much you have earnt in that period. 

People who are self-employed or earn income from an alternative source, you’ll have to complete a self-assessment tax return each year. 

Do students pay income tax?

Despite not having to pay council tax, students that are working whilst studying are subject to income tax. Despite income tax being a necessity, students are often prone to overpaying without even realising. 

Why students often overpay income tax

Calculating income tax owed

There are a variety of reasons why students can be subject to paying more income tax than is necessary, and it’s often the case that they might not realise. One common situation that occurs is students being put on an emergency tax code by their employers. This is often the case if you don’t supply your employers with a P45 or other evidence of what your tax code should be. If you are emergency taxed, you will eventually receive that tax back. However, if you are on the incorrect tax code, this will need to be amended as soon as possible or you will continue to be taxed the higher amount. 

In most cases, students don’t end up earning over the tax-free personal allowance within a tax year. However, if you end up working many extra shifts at your part time job, you can eventually end up totting up full time hours. HMRC will start taxing you as soon as you are over the monthly equivalent of the tax-free threshold, however, if this rate isn’t kept up for the entire year, you’ll be entitled to a tax rebate on that money. 

Tax-free personal allowance explained

Currently, you can earn up to £12,570 in a tax year without having to pay any income tax. The majority of students will have to pay tax at a rate of 20% on anything earned over that amount. If you earn over £50,271, you’ll have to pay 40% income tax. If you work abroad for the summer on a temporary basis, you’ll also need to pay your tax to the UK rather than the country you’re working in. 

How to claim a refund

As your employer controls your tax payments to HMRC, you’ll be able to keep track of how much tax is being deducted through your payslips. Of course, if you are self-employed, you’ll do your own taxes and be aware of how much is going out.

Under some circumstances, you can end up paying too much tax and may need to claim it back. Some of the most common scenarios include the following: 

You’ve paid too much tax from your current job – In the majority of cases, being incorrectly tax at your job comes from being on the wrong tax code.  If this is the case, you just need to contact HMRC and explain your situation. If you are due a tax refund, your employer will reimburse you on your next pay. 

You’ve paid too much tax from your previous job – After you receive a P45 from a job have left, you’ll be able to see exactly how much tax you’ve paid on your salary for the previous year. You can then use this to establish whether you’ve overpaid on taxes. If you’re certain you have paid too much tax, you can attempt to claim online, providing you have your employers PAYE reference number as well as the specific details regarding the taxable income you have paid during the year. Alternatively, you can ring up HMRC and explain your situation. 

You’ve been taxed too much on your savings account – The likelihood is that this won’t affect too many students, however, it’s worth noting that the interest you earn on savings account may also be taxed at 20%. Check whether you are liable to pay tax on your savings interest using a tax calculator and if there are any irregularities, get in touch with your bank. 

Some tax refunds will be automatically given at the end of the financial year, especially if you have been emergency taxed. However, it’s always best to check yourself and see if you are eligible for a refund. If you think you might be entitled to one, it’s worth speaking with HMRC. 

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Student tax refund guide