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Special tax rules for full time students
Thursday, August 12th, 2010
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It’s the holiday season and you may be thinking of employing a student solely during their summer, winter or Easter holidays. If this is the case then you may be able to pay them without deducting PAYE tax.
To pay a student without deducting PAYE tax, the student needs to fill in the declaration on the form P38(S). They need to do this as soon as they start working for you, work only in their holidays and their earnings from your employment must not exceed their personal allowance for the tax year. If a student employee is covered by P38(S) then you don’t have to follow normal P45 & P46 procedures.
You should only complete the employer’s statement on the P38(S) either when the student’s period of employment with you ends, or at the end of the tax year on April 5 if that date falls during the Easter holidays and the student continues working beyond it.
You will need to obtain and complete a new form P38(S) for each tax year that a student works for you.
It should be noted that in most cases, National Insurance contributions will still have to be deducted.
Where NICs are deducted but not tax, notation ‘NI’ can be used on the payroll record. This must be changed at year end to tax code NT as ‘NI’ is not acceptable in the tax code field.
If you employ a student at any time other than their normal holiday periods or they work for you both during and outside their holidays, then you should operate the normal PAYE procedures as used for any other employee.
If the student’s earnings go above their Personal Allowance, then you will need to start deducting PAYE tax from your payments to them.
If this happens, complete a form P46 with the employee using their original start date on the form (not the date their earnings went above their Personal Allowance)
You should then deduct tax depending which box has been ticked.
- Statement Box A or Box B ticked – start deducting tax using OT on a Wk1/Mth1 basis.
- Statement Box C ticked – start deducting tax using code BR on a Wk1/Mth1 basis.
Some foreign students will also be able to benefit from the P38(S) procedures explained above. The two eligible categories of foreign students are:-
- Nationals of other EU member states, excluding Bulgaria and Romania.
- Students sponsored by a range of HMRC approved organisations.
For sponsored students, you will need to obtain the P38(S) form directly from the student – they will have been given one by their sponsoring organisation.
Further information can be found on www.hmrc.gov.uk or www.direct.gov.uk
