HMRC has made a revolutionary move, taxing students directly on their summer job earnings for the first time and also changing the way they calculate the tax students owe.

 Bye bye P38(S), hello to income tax at source

Until now, students have simply filled in a P38(S) form and handed it to their employer to avoid paying 20% basic rate tax. The theory was that very few students, if any, would earn more than the £9,440 personal allowance over the Christmas, Easter and summer holidays, even if they worked every available holiday day. Now HMRC have tightened things up, instead deducting income tax at source in much the same way as PAYE.

Real time stats mean it’s easier to calculate income tax accurately

 The Revenue’s new ‘real-time information’ system means employers can update information about employee tax payments regularly, so the information available to the HMRC is more accurate and current. It is students’ responsibility to claim the tax they’ve paid back, if and when a refund is appropriate.

If you’re a student and earn less than £9,440 in a year working part time or short term, you can claim back your tax by asking for a P45 when your short-term job ends, which contains all the details you need to complete a P50 ‘tax back’ refund form.

 Accurate taxation made easier

The new process has effectively made the old P38(S) form redundant. Because the ‘real time’ system provides up to date information, HMRC can correct tax over-payments and under-payments much more easily and quickly than before. You win some, you lose some…!