Student Finance and the Non Tax Payer Myth in the UK

The term "non tax payer" was coined by various financial institutions and the media. In truth, there is no such thing. In fact, the old saying is true - there are two things in life that are certain; death and taxes. Everything that you earn from the day you are born to the day you die is liable to taxation - and sometimes after you die too!

It was probably started to simplify the concept to someone who doesn't work, or only works a few hours a week, and has savings. It has also migrated over to students; however, both groups are liable to PAYE taxation.

Current legislation stipulates that most people under the age of 65 can earn up to 5229 per annum (from 6 April 2007) before being liable to PAYE tax. If a person's income, including grants and non-exempt savings schemes and savings accounts are less than this, they will not be taxed on this, but it is still potentially 'taxable income'.

A common query in payroll is for a student to complain that they are paying tax. The fact is, that even students must be assessed in the same way; their earnings and any other income must not total more than 5229 per annum. To ease administration, and accepting that most full time students only work during normal school holidays, the Inland Revenue allows the use of form P38(S). This must only be completed and signed by the student if they are sure that their earnings, including any grants will be less than the stipulated amount from the previous April to the following March. They must also only work during normal school holidays, i.e. Easter, Christmas and summer with no periods in between. Only then can their employer be exempt from calculating tax on their pay, and frequently the tax code used may have a special program attached to it, to ensure that if their pay does exceed 5229 over the year, they will start paying tax, and this is absolutely correct. The 'tax free' dispensation does not apply to employees who work part time and go to college for the remaining college hours in the week.