Paying Income Tax

Your income may be from different sources or from one main source. Below are some examples of where you may have to pay Income Tax:

Salary or wages

Income tax is usually deducted from your wages by your employer. If you are a student and work only during your holidays but not at all during term time, you ask your employer if you can complete a form P38(s) so that tax is not taken from your salary. To be able to do this you must be earning less than your tax free personal allowance.

Benefits

Benefits that are taxable include Statutory Sick Pay, some types of Employment and Support Allowance and Statutory Maternity Pay. Benefits that are non-taxable include Attendance Allowance, Child Benefit, Guardian's Allowance, Housing Benefit and Maternity Allowance.

For more details ask at your local tax or benefits office or visit the HMRC website >>

Savings and investments

Interest which you get from bank, building society or local authority savings will be taxed at 20% and this is usually taken off by the bank or building society etc holding your savings. Interest from some savings, including a number of NS & I investments is paid before tax is taken off.

However if your total income (the income you receive and any tax taken off) for a particular tax year including income from savings, is less than your personal tax allowance you will not have to pay tax on your interest. You may well be in this position if you are at school, college or university or you are on benefits or a low income.

If your total taxable income is less than your personal allowance, you should arrange for your bank, building society or local authority to pay your interest without deducting tax. This can be done by completing a form R85 which you can download, get from your bank, building society or tax office.

There is also a useful Taxback section on the HMRC website which explains in more detail what to do if you are paying too much tax on your interest.

If some tax has already been deducted, call your local tax office or an Enquiry Centre and get a form R40 to claim back any overpayment. Look in your phone book or Yellow Pages under HM Revenue and Customs or Government offices for details of your nearest centre. You can also get more information about claiming a repayment and download an R40 >>

If you are under 18 in England, Wales and Northern Ireland or under 16 in Scotland and have savings you need to get a parent, guardian or trustee to claim your tax back for you.

Some savings and investments are not taxable. These include:

• Individual Savings Accounts (ISAs)
• Interest from National Savings Certificates
• National Lottery winnings

(Any money you make in interest on the winnings from the lottery or premium bonds will be taxable).

Dividends from shares or unit trust distributions

If you have shares in a company when you get a dividend payment it will come with a tax credit voucher or you may get a consolidated voucher at the end of the year for all dividends paid. In the UK the tax credit shown on the voucher is not repayable even if your income is too low to pay tax.

Paying for the first time after leaving school

In your first job after full time education your employer will ask you to fill in form P46 and this is then sent to the Tax Office. If you haven't worked in the tax year yet, you will still have a full year’s personal allowance to set against your wages and this may mean you do not need to pay any tax at all.

If you are only going to be working in the holidays and not at all during term time and you think you might earn less than your tax allowance in the year ask your employer for form P38(S). Fill in, sign it and hand it back to your employer. If your employer operates the P38(S) scheme, filling in this form will allow you to get your pay without being taxed and if some tax is already deducted your employer will refund it later.

Useful organisations

HMRC – part of the site is especially for students >>

Directgov also has a special student tax site >>