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Income Tax and National Insurance

By David Malcolm

Wednesday 29 May 2019 Info and advice

It’s a common misconception that students don't have to pay income tax in the UK. They do – it's just that their total income usually doesn't take them over their personal allowance (the amount you can earn in a year without having to pay tax). Here’s an overview of how income tax and national insurance affects students, with links to more detailed information.

Income tax

Income tax is charged on all assessable income in a tax year, which runs from 6 April to 5 April. Everyone resident in the UK has a personal allowance – an amount they can earn before any tax is due. 

The standard Personal Allowance is £12,500, which is the amount of income you do not have to pay tax on. Your Personal Allowance may be bigger if you claim Marriage Allowance or Blind Person’s Allowance. It’s smaller if your income is over £100,000.

If you don’t earn more than your personal allowance you don’t have to pay any income tax. Any amount you earn above your allowance is taxed at 20 per cent initially, with much higher incomes eventually taxed at 40 per cent and more.

Here’s the government’s summary of income tax rates and allowances.

Interest on your savings may be taxed as well, at 20 per cent initially. However, if you’re on a low income you may be able to avoid this tax. For more information, see tax on savings interest. You can also save or invest your money tax-free with an Individual Savings Account (ISA). See what is an ISA? for more information.

Not all of your income is taxable. Student grants and bursaries, and nearly all scholarships are tax-free. Sometimes private scholarships are taxable, so you should confirm that such payments are tax-free.

Tax is collected either through your employer in a system known as Pay As You Earn (PAYE), or through a self-assessment process if you’re self-employed.

To find out more and check you’re paying the right amount using an online tax checker, see the government’s income tax overview.

Overpaying tax

About 80 per cent of full-time students who work don’t exceed their personal allowance in the year.  However, due to the way tax is calculated, students sometimes overpay tax.

This is because student income often varies considerably during the year. For example, you might work full-time during the summer vacation, and then only part-time or not at all during term.  Therefore, although your overall earnings don’t exceed your personal allowance, or only do so by a small amount, tax may be deducted in the summer on the assumption that your earnings will continue for the full tax year.

If you’ve overpaid tax you can reclaim it, and can do so up to six years after the tax year for which you’re reclaiming.

Reclaiming overpaid tax

If you believe you’ve paid too much income tax you can apply for a refund. You can do this through your local tax office – it’s relatively straightforward. You might need proof of your earnings, such as P60 or P45 forms from your employer.

Some private companies offer to reclaim tax on your behalf, but then take a cut of any refund that’s due – often around 20 per cent. NUS recommends that students or graduates apply for tax refunds themselves, because this is money you’ve earned and is due to you. The process isn’t complicated – here’s the government’s guide to how to claim a tax refund.

Find out more

For more information on income tax, see:

  • The government’s information for students paying tax.
  • The Low Incomes Tax Reform Group (LITRG)’s information on students and tax. The LITRG provides help and information for those least able to afford to pay for tax and national insurance advice.
  • TaxAid’s advice for students. TaxAid is a charity that helps people on low incomes with their tax affairs.

National insurance

In addition to income tax, national insurance (NI) may also be deducted from your earnings. NI contributions help to pay for benefits, including the state retirement pension.

If your earnings from paid work are between £146 and £817 per week you pay NI at a rate of 12 per cent of your earnings. If you earn more than £817 per week you pay an extra 2 per cent on top.

As with income tax, students are in no special position with regard to NI, but contributions aren’t deducted from student grants and loans.

For more information on NI see:

This information was updated in June 2019. NUS provides this information in good faith and has taken care to make sure it’s accurate. However, student finance issues can be complicated, and rules change frequently. You should contact the advice centre in your students' union, college or university for support if you’re uncertain or need more help.