Holiday Jobs Shouldn’t be Taxing!
With the summer holidays now upon us, it is a popular time for students to take up temporary jobs as they look to fund their holiday activities and their studies. It is important for those taking up a summer job to keep a close watch on their tax position, as they may easily end up paying more tax than they need to, and often with the small amounts being earned the ability to claim a tax refund can be very welcome.
A lot of part-time employees will earn less than the tax free personal allowance, but the tax code that is applied whilst they are working may mean that they pay more tax than they should.
Every UK resident receives a personal allowance – £11,500 for the 2017/18 tax year – and income tax is only payable on earnings above this amount.
Many students who only have a summer job are not going to earn more than their personal allowance so should not have to pay tax on their income. The tax system however is not quite that straightforward as income tax and national insurance will normally be deducted in every payslip. This is because under PAYE the personal allowance is deemed to accrue evenly over the year which can have the effect of annualising earnings.
For example, if someone has a summer job for 10 weeks which pays £300 a week, their total earnings for that period are £3,000. If that is their only paid work for the year, it is under the £11,500 income tax threshold, and so no income tax would be due. However, under the PAYE system, income tax can be deducted as if the individual was going to earn £15,600 for the year and any overpayment would then need to be reclaimed from HM Revenue and Customs (‘HMRC’).
How to claim a refund
If an individual has suffered more income tax than they should, then the overpaid tax can be reclaimed.
If an individual goes on to do another job they should ensure they receive a P45 from the last employer to pass on to the next in order to ensure they are not put on an emergency tax code. Once the tax year has ended HMRC can be contacted to claim any refund due. Claims can be made online through the individuals personal tax account or by phoning HMRC on 0300 200 3300.
If no further work is intended during the tax year refunds can be claimed on a form P50 once employment has ceased.
HMRC should calculate refunds automatically after the end of the tax year, but they will send it to the address on their records so it is necessary that this is kept up to date.
It is possible to check if too much tax has been paid via an HMRC tax tool at www.gov.uk/check-income-tax.
The situation described above can of course be equally applicable to anyone who is employed for a short period of time, or those working only a few hours a week, and may relate to previous years too.
If you have any questions on the above or would like any further information, please contact our Tax Director, Jenny Marks.
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