Students, the case for making life easier

Published on 13 January 2004

This report published in January 2001 looks at the problems that students face with the current tax system and recommends a set of measures geared towards treating students as a separate category of customer within the Inland Revenue.

Executive Summary

The Low Incomes Tax Reform Group (LITRG) originally chose to concentrate on the tax problems of students because of their growing numbers, their low incomes, and the lack of thought being given to their tax education. We soon found that the underlying tax processes applicable to students had been allowed to remain untouched for many years and now did not adequately reflect the needs of the student population.

This report argues that students need special recognition within the tax system for three main reasons.

First, they face financial hardship. Because a substantial number now rely on income-contingent loans to fund their living costs, and have to make a means-tested contribution towards their tuition fees, many need to work the whole year round to make ends meet.

Secondly, nothing in the school curriculum has helped them become familiar with the tax system, and yet because so many combine study with part-time work, they have to deal with tax and national insurance matters for the first time while still in education.

Thirdly, because the Inland Revenue assign no particular priority to students, old procedures survive untouched, the literature designed for them is outdated and poorly focused, and the lack of any support focused on students means it is difficult for them to get access to the right information.

Because of their low incomes, students suffer disproportionately if tax is deducted unnecessarily from their wages, yet few employers know about the Form P38(S) procedure which allows a student to be paid tax free during vacation working. That procedure is itself overdue for review, and we recommend in this report that it be extended to term-time working. It is also poorly publicised, with the result that most students and their employers are unaware of it, and working students overpay millions of pounds of tax every year.

We identify two other areas where students unwittingly overpay tax because there is little information to assist them. These are the tax exemption for certain bursary awards made by employers to employees attending full-time education courses, and the tax advantages available to students from overseas.

Students also suffer from lack of co-ordination between the Government departments they have to deal with – the customer service staff of the Inland Revenue, the DfEE and the Benefits Agency are generally unaware of issues relating to each others’ functions. In addition, there is misalignment between income tax and the evolving tax credits as they affect students. The need to tackle these problems in the long term has already been identified; we urge that they be given more immediate priority.

We conclude by recommending a set of measures geared towards treating students as a separate category of customer within the Inland Revenue, updating and revising current Revenue literature and processes, and improving the publicity directed towards students and their employers.

(13-01-2004)

Student report