⚠️ Our Tax Guide for Students guidance has moved to the LITRG website. If you are a student or have a student loan and have a query about any of the issues we cover in the section, please let us know by filling in the Contact Us form.
Whether you have a job or you are running your own business it makes sense to sort out your tax from day one.
To help finance your studies, you might decide to work either on a full-time or part-time basis – for an employer (in other words employed) or for yourself (in other words self-employed). You might work regularly throughout the year, but more often than not you will work more hours over your vacations.
How do I know if I am employed or self-employed?
It is not a question of choosing one over the other – it depends on the contract you have and on how you actually work. Sometimes it is easy to work out whether you are employed or not, but sometimes it is not, and you may need to follow our guidance to help you decide. Our guidance also includes links to the tools used by HMRC.
What earned income do I pay tax on?
All your earnings, whether from employment or self-employment, are liable to UK taxation if your earnings are sufficiently high, after deducting any allowable tax allowances. The UK income tax system works based on tax years that start on 6 April and end the following 5 April (for example the tax year 2021/22 runs from 6 April 2021 to 5 April 2022).
⚠️ Your tax obligations are very different, though, depending on whether you are employed or self-employed
How does the tax system work for employees?
The system works well for people with regular amounts of income, but, as a student, you may well not fall into this category: you might have more than one job at a time, move frequently between jobs, do work via an agency, take on an extra job during vacations, work overseas for a period of time, do a ‘sandwich’ course where you work for a year between periods of study or work for yourself.
You will need to take care that you do not pay more tax than you need to. If you are employed, your employer operates the Pay As You Earn (PAYE) system that takes both income tax and National Insurance contributions (NIC), if they are due, from your wages before paying you. However, as noted above, the PAYE system works best when you earn regular amounts of income from one employer. If you leave an employment part way through the year or have more than one job at a time, you may end up paying tax that you can claim back later. You need to take action because you may not be offered a tax refund automatically – and you only have four years in which to claim it.
Income tax deductions from your pay normally take into account any previous pay from that same employer (and possibly from other employers too) in the tax year. By comparing the amounts earned cumulatively and tax already paid, the PAYE system deducts the appropriate amount from your pay. This works well normally until you leave the employer or take a second job.
National Insurance contributions for employees do not work in the same way as income tax deductions: the system looks only at the contribution needed for that pay period. So earning a large sum in one week may lead to NIC being deducted from your pay that cannot be refunded, even though you normally earn a very small wage and ‘on average’ would not need to pay NIC.
How does the tax system work for the self-employed?
You may ‘work for yourself’ and so are self-employed. If you are self-employed, you will need to deal with HM Revenue & Customs (HMRC) and you may need to report your own income to HMRC and pay over the tax and NIC personally. We provide details of the main tax issues facing the self-employed in that section and our Guide to self-employment explains the less common tax rules and contains more detailed information including a case study showing how to prepare accounts and what to include on your 2020/21 tax return.
Is all the money I get taxable?
Some of the money you get may not be taxable – for example student grants, student loans or sponsorship money received. However, any student loan you get will have to be repaid if you earn above the repayment threshold after you have completed your course. Student loans are usually repaid via the tax system while you are in the UK. In addition, you may receive some additional support if you are disabled or are a carer; alternatively you may receive tax credits or universal credit. You should check carefully whether any state support you receive is taxable.
Where can I get more information?
If you have come from abroad to work in the UK, we suggest you also visit our International students page.
You may undertake temporary work through an agency, if this is the case you may want to refer to our information on agency workers in our Employment section which explains some of the tax issues you need to be aware of.
You may also undertake unpaid ‘work’ as a volunteer or intern to improve your chances of a permanent job in the future. If you are paid expenses in connection with this work, you may want to refer to our page I am a volunteer: are there any tax rules I need to be aware of?.
You may also find our guidance Understanding your payslip? helpful.