Students could save with tax refunds and changes to student loan repayments

George Hay Chartered Accountants

Students who have been heading back to university in recent weeks could be entitled to a helpful tax refund, according to HM Revenue & Customs (HMRC).

Those who worked through their summer holidays may have been taxed through PAYE, as if they were earning at that level for the whole year. As a result, many students may find that they have paid more tax than they should have done. However, if their earnings were below the personal tax-free annual allowance of £11,500 and they will not be continuing to work during term time, they can apply for a tax refund now.

Where this is the case, students will need to apply for a refund using a P50 form, either online or by post. The P50 form can be found here.

On the other hand, if a student also works during term time they may, as a result, have earnings which exceed the £11,500 threshold. Under these circumstances, students will have to pay tax on any earnings above this amount.

In a blog post advising students to check if they are eligible to receive taxed earnings back, the Revenue also took the opportunity to remind them that holiday income will not count towards student loan repayments, provided they are still studying.

Talking of student loan repayments, the Government have announced that the current repayment thresholds will increase, following a wide-ranging review of student finance. This means that thousands of students will soon be able to earn more before deductions are applied, potentially saving them thousands over their lifetime.

Currently, those students who took out their loan on or after 1 September 2012 (otherwise referred to as Plan 2) begin to make repayments once their earnings exceed £21,000 per annum and repayments are made at 9% of any income over the threshold.

However, effective from 6 April 2018, HMRC have confirmed that the threshold for Plan 2 students will increase from £21,000 to £25,000. This will apply to all current and future borrowers for whom employers make deductions.

The threshold for Plan 1 students, who took their loan out before 1 September 2012, will increase from £17,775 to £18,330.

Employers who are unsure of the Plan type applying to any employee, should first approach them and ask them if they can provide the necessary information. Employees can check their own information here.

Otherwise, in the instance that an employee is unable to confirm which Plan type is relevant to them, employers should make deductions at the first available pay date using Plan type 1, and do so until HMRC deliver further instruction.

Further information about how and when to make deductions as an employer can be found on the HMRC website, here.

Here at George Hay, our specialist payroll team have the knowledge and experience to help you with any of your payroll queries and our team of tax experts are on hand to assist with your tax issues, whether personal or business. If you would like to speak with one our expert advisers, contact us on 01767 315010.

Link: Have you been taxed for your summer job?

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