The Low Incomes Tax Reform Group (LITRG) is giving some tax tips for young people who are looking for a summer holiday job, now that university lectures have finished and school’s (nearly) out.
Victoria Todd, Senior Technical Manager for LITRG, said:
“Whether school’s out for summer or school’s out forever, many young people will be starting work of some kind in the next few weeks. There is a general misconception that students and young people fall outside the tax system so when tax is taken off their pay it comes as an unwelcome surprise.
“For many young people, a summer job provides their first experience of the real world, giving them responsibility and a degree of financial independence before they return to education or move on in their chosen career. We urge anyone taking a summer job to check their tax position carefully – you do not want to end up paying more tax than you need to and then have to spend your time trying to get a refund from HMRC.”
LITRG’s summer jobs tax tips
Watch your personal allowance – especially if you have more than one job
If this is your first job since 6 April 2018, when the new tax year started, then your employer will only take tax from you if you earn more than the cumulative ‘tax-free’ amount. Most individuals have a tax-free personal allowance of £11,850 for the tax year 2018/19 – but the tax-free amount is spread evenly over the year. So, at the end of month one, you could have earned up to £987 and paid no tax; by the end of month three, June 2018, you could earn up to £2,962 without paying tax and so on. But this only works if your tax code is correct. If it is not ‘1185L’ (which is code for the full tax-free personal allowance of £11,850), then check out the Tax Guide for Student website to ensure it is correct and if not see how you might get it changed.
If you have more than one job at a time, normally HMRC allocate your full personal allowance to your first job and tell your ‘second’ employer to deduct basic rate tax (20 per cent) from your second income, by applying a BR (basic rate) code. This normally works well if you have both jobs throughout the year and earn more than the personal allowance overall, but if you only work for part of the year, then you may find you do not use your full personal allowance in one job, but have still paid tax in the other.
In such instances, you can ask HMRC to split your personal allowance across both jobs which will give you a cash flow advantage. There is more information on contacting HMRC to split your personal allowance over jobs on Tax Guide for Student's 'multiple jobs factsheet' and if you have already overpaid tax there is also help on getting a tax refund.
Remember to keep your payslips and P45 form (the form you should be given by your employer when you leave your job) as you may need this information if you need to reclaim any overpaid tax.
National Insurance contributions – don’t forget these work different to tax
Many low income earners do not pay tax due to their personal allowance, but they may find themselves paying National Insurance contributions (NIC) especially if they have fluctuating earning such as students working extra shifts during the summer holidays. This is because employees NIC is calculated on a pay-day basis and not cumulatively over the tax year, so if you are paid weekly and earn more than £162 per week then you will pay NIC.
If you have more than one job the NIC thresholds are applied separately to each job unless your employers are connected. This means that if you have a summer job working at a national fast-food restaurant but also work mornings at your local shop and you earn less than £162 per week at each job there should be no NIC to pay.
Working overseas – make sure you’re only taxed once
You may find yourself paying tax in the country you are working in. If so, you will need to take local advice to see whether you can claim any of it back – HMRC will not repay any overseas tax to you. Do remember you need to keep a note of any overseas income you receive – you are unlikely to fall outside of the UK tax net by working overseas for a short period and it will form part of your total income to be taxed in the UK. But it should not be taxed twice as any overseas tax you pay on it can be set against your UK tax bill. You will need to keep evidence of the tax paid overseas (after any refunds have been claimed) as well as your earnings. There is more information on the 'going abroad' section of the Tax Guide for Student website.
Volunteering – you’re not taxed on expenses, provided they are genuine
You can get good experience for your CV by volunteering or working as an intern. Any expenses paid or reimbursed to you in connection with these roles should not be liable to income tax provided they are based on actual expenditure (or are within certain limits) and that you genuinely incurred them. If the expenses paid or reimbursed are more than the actual expenses incurred, HMRC may consider you to be receiving a wage or salary for your services and the payment could be treated as taxable income.
Working for yourself – fill in a tax return if you earn over £1,000
If you decide to earn some extra cash by working for yourself then you will not need to report the income to HMRC or complete a tax return (unless you need to complete one for another reason) if the total of any self-employed or casual income (turnover) is £1,000 or less during the tax year. This is because you can claim the trading allowance, which was introduced from the 2017/18 tax year. If you earn above £1,000 then you can still make a partial relief claim for the trading allowance but you will need to notify HMRC of your self-employment and complete a tax return. This is the case even if your total earnings are below the personal allowance (£11,850). It is not always in your interest to claim the trading allowance, for example if you have expenses above £1,000 or have made a loss. There is more information on the LITRG website.
How to claim a tax rebate
If you are only working for part of the tax year and find yourself paying tax, then you should check whether you are due a tax refund. You can do that with HMRC’s tax checker.
You should be able to claim any overpaid tax yourself, without needing to use a commercial tax refund company. If it is after the summer holidays and you have no plans to continue working in the short-term then to claim a refund, you will need to fill out a P50 form, which can be found on the GOV.UK website. You can print it out and post it to HMRC, or complete it online if you have a Government Gateway account. What is more, you can actually reclaim money overpaid in previous years, too – but remember you only have four years from the end of the tax year in which the overpayment arose to claim a refund.