In this section, we explain, sometimes linking to other areas of our website, some tax basics. Under our Migrants section, we also provide guidance for those coming to the UK to study from abroad.
Also, you might find it helpful to look at our monthly checklist of topical deadlines and action points.
Calculating your Income Tax
Working out your tax position is basically a four-stage process.
1.Work out whether your income is taxable or not.
Some income is taxable and some is tax-free.
2. Work out the allowances you can deduct from your taxable income, or your final tax bill.
Every man, woman and child in the UK has a ‘personal allowance’. For a person below the age of 65 the personal allowance for the tax year starting on 6 April 2011 and finishing on 5 April 2012 is £7,475 .
There is also a blind person’s allowance for those who qualify. Despite its name, you do not have to be completely without sight to claim it so if you have very poor eyesight, make sure you check if you could be entitled.
And, although probably not relevant to most students, higher age-related personal allowances may be claimed by people aged 65 and over at any time during the tax year, and where one of a couple was born before 6 April 1935 a married couple’s allowance might be available.
3. Work out at what rate your income is taxed.
If you qualify, a small amount of savings income might be taxed at 10% if you qualify for that rate.
Next, there is the basic rate band, where most types of income are taxed at 20%. Most people are within the basic rate band.
But for people with higher levels of income, 40% and 50% tax rates can also apply.
See our Tax and NIC rates section for more details.
4. Finally, consider whether you can deduct anything from your final tax bill. The most common deduction is tax you have already paid, either in the UK or overseas. But take care: some deductions might not be allowed and some tax is not refundable (for example, the tax credit on dividends).
Paying tax
People in the UK have two main ways of paying their Income Tax:
- they can pay ‘at source’. This means someone takes tax off your income before you get it. For employees, this is done through the Pay As You Earn (PAYE) system
- they can complete tax returns at the end of the year, through HMRC’s Self Assessment system.
Most people pay their tax at source and do not have to fill in tax returns. Self Assessment is typically for people who have higher levels of income or income which is not taxed at source, for example, profits from being self-employed, or rental income.
What differences are there for students?
Unfortunately, students pay tax in very much the same way as anyone else, but there are some particular things to look out for:
- students might have some money coming in which is different from others – for example, sponsorship, scholarships, bursaries and loans. We consider the tax implications of these in our Other tax issues.
- student employment patterns can make navigating the PAYE system a nightmare, so you should take a careful look at the section on Working.
Finally, when you finish your studies or leave your course, you will need to think about repaying your student loan and we explain how the tax system is used to collect repayment in Student Loans.
