How to Apply New Student Tax Rules
Students were dealt another financial blow last month when the student tax certification scheme came into effect. As of April 2013, UK students who have taken the trouble to find work to help pay for extortionate University fees and increased living expenses will no longer receive tax relief from the student certification scheme, but will get taxed in full just like any other full or part-time employee in the UK.
After fees for higher education was dramatically hiked up a couple of years ago, you can forgive students for feeling some resentment towards the current coalition government who appear intent on making education a privilege only for families that can afford to send their children to University.
The government´s financial attack on students doesn´t end there either! Student loans that have been paid for by the state are now subject to a hard-to-see clause that increases the interest of repayments year on year. As a result, the majority of UK students will be paying off their student debts well into the thirties and early forties.
University holiday tax
Thankfully, there is still one glimmer of light for students – the employment tax is only payable during University holidays. According to the Treasury the reason for the planned changes is due to the employers abusing the scheme. But in typical government fashion, the innocent victims are made to suffer because of the non-compliance of fat-cat corporations.
The new student tax laws came into effect on 6th April, whereby businesses hiring a student during University holiday periods must complete a Form P46 rather than the P38S that is currently used. Alternatively students must provide a P45 from another employer in which case they can commence work on a code 1 straight way without applying for the standard emergency tax code. In all cases, the PAYE system is then applied as usual.
Applying emergency tax
Students who need to complete a P46 and pay emergency tax will suffer the biggest losses. HMRC has not given any specific information how they will manage P46 information and by the time you hear back from them with advice of which tax code to use the student will most likely have returned to University.
In such circumstances you can avoid duplicating records in HR and accounts by delaying the issue of P45 when the student leaves. This will make it easier for you to recalculate PAYE using the relevant tax code HMRC advises. Therefore, if you owe the student worker any it is easier to make the one calculation based on the P45 tax code.
If you need any more advice about your tax liabilities when employing students, or any other tax related issues for small businesses, please do not hesitate to contact a member of our friendly team at firstname.lastname@example.org or by calling our free phone number on 08000 235 234.