Understanding UK tax system when working part-time as an international student

If you're an international student working part-time in the UK, figuring out taxes can feel overwhelming. But don't worry! In this article, we'll break down everything you need to know about the UK tax system, making it easier for you to understand your obligations and stay on the right track while studying and working. 

Importance of understanding UK tax system 

The UK tax system is multifaceted, comprising various taxes such as income tax, National Insurance Contributions (NICs), and Value Added Tax (VAT). For international students working part-time, income tax and NICs are the primary concerns. The tax year in the UK runs from April 6th to April 5th the following year, with tax returns typically due by January 31st. 

Tax obligations for international students 

International students working part-time in the UK are subject to certain tax obligations, depending on their residency status and income levels. Generally, students in full-time education, employed part-time during term time, can expect income tax and National Insurance deductions to be automatically taken from their wages before receiving them.  

This process, known as Pay As You Earn (PAYE), simplifies tax obligations by ensuring deductions are handled by the employer. Everyone is entitled to a personal allowance, which is an amount they can earn before income tax kicks in. As an international student, if your average monthly earnings exceed £1,048, you're required to pay income tax. Similarly, if your weekly earnings surpass £242, National Insurance contributions become mandatory. 

Potential consequences of cash-in-hand work 

Taking on cash-in-hand jobs while being an international student can have significant implications on your tax contributions and even your visa status. Cash-in-hand jobs often involve working without proper documentation or legal authorisation, which is against UK immigration laws. Engaging in such work can jeopardise a student's visa status and can result in serious consequences, including deportation. 

Moreover, cash-in-hand jobs usually do not adhere to tax regulations, leading to under-reporting of income and non-payment of taxes. This can result in legal penalties, including fines and back taxes owed to HM Revenue and Customs (HMRC).  

Additionally, failure to declare income accurately can impact future visa applications and renewals, as immigration authorities may view it as dishonesty or lack of financial stability. 

It's essential for international students to understand the risks associated with cash-in-hand work and to prioritise legal employment opportunities. Seeking advice from university support services or immigration advisors can help students navigate their options and avoid potential legal and financial pitfalls.  

Student services of universities like Loughborough University provide various resources and support around understanding and sorting out tax liabilities for students to avoid legal issues in the future. For first-time international students in the UK, Edinburgh Napier University provides a complete guide with useful tips about living and studying in the UK, including money management and tax.  

Tax contributions when working abroad on holidays 

Generally, for students who normally live and study in the UK but work abroad during breaks, the income tax liability depends only on earnings exceeding their personal allowance. However, if employed by a UK employer while abroad, National Insurance contributions may still apply.  

Conversely, if employed by a foreign entity, UK National Insurance is typically waived, but obligations may arise in the country where you're working. 

Types of income exempted from income tax 

Certain types of income are exempt from income tax in the UK, providing tax relief for international students. Typically, international students are not required to pay UK tax on income earned abroad, especially if it's used for essential expenses like course fees, food, rent, bills, or study materials or if the income is generated from sources other than employment or investments, such as a scholarship or grant.  

Additionally, students who come from countries with a double taxation agreement with the UK may also benefit from tax exemptions on the income they earn in the UK. These agreements are designed to prevent individuals from being taxed twice on the same income, both in their home country and in the UK.  

Students can use HMRC’s tax checker to calculate if they have overpaid or underpaid their tax contributions. In an instance where they have overpaid taxes, they can claim a refund or contact HMRC for support. 

Things to note when changing part-time jobs 

When leaving a job and changing employers, individuals should be aware of the implications for their tax contributions. It's essential to collect a P45 form from the previous employer upon leaving the job and to give it to the new employer with the correct tax code to ensure accurate deductions. Failure to do so could result in over or underpayment of tax.  

Additionally, if changing jobs frequently, individuals should keep track of their total earnings throughout the tax year to avoid accidentally surpassing their personal allowance and triggering higher tax rates.  

If you work in the UK while studying, the tax contributions expected from you will be as outlined above. However, when leaving the UK after your studies, you might be entitled to reclaim the tax you have paid by submitting a form P85 to your Tax Office. 

FAQs 

Do students pay tax on part time jobs UK? 

Yes, students are generally subjected to paying tax on part-time jobs in the UK, depending on their earnings. If a student's income exceeds the annual personal allowance threshold, which is £12,570, they are liable to pay income tax. Additionally, if their weekly earnings surpass £242, National Insurance contributions become mandatory.  

How much tax does a student pay in UK? 

The amount of tax a student pays in the UK depends on their income. It's advisable for students to understand their tax obligations and consult with HM Revenue and Customs (HMRC) or a tax advisor if needed to ensure compliance with tax laws. 

Can students refund tax in UK? 

Yes, students might be eligible to claim a tax refund in the UK under certain circumstances. If a student has overpaid tax, such as if they have paid tax on earnings below the personal allowance threshold or if they have stopped working partway through the tax year, they may be entitled to a refund.  

To claim a tax refund, students can typically fill out a form called P50 or P85, depending on their situation, and submit it to HM Revenue and Customs (HMRC). It's advisable for students to keep track of their earnings and tax deductions throughout the tax year and to consult with HMRC or a tax advisor for guidance on claiming a refund. 

How to calculate tax in UK? 

You can use the HMRC’s tax checker to calculate your income tax payments. 

How can I save tax in UK? 

You can save tax in the UK by taking advantage of tax allowances and deductions, such as the personal allowance and tax relief on pension contributions. Additionally, consider investing in tax-efficient savings accounts or ISAs, maximising your use of tax-free allowances, and exploring tax-efficient investment strategies.