Current rules
Under current legislation, if you employ students on a UK based course, or UK students studying abroad, their wages may be paid without the deduction of income tax, provided the following circumstances apply:
- The student only works for you during the holiday periods, and
- Their total income from all sources (excluding student loans, scholarships and educational grants) is less than the personal allowance – £8,105 for 2012/13.
In order to pay a student without the deduction of PAYE income tax, a form P38(s) must be completed a soon as the student starts to work for you. If their income goes over the personal allowance, then you are required to start deducting PAYE and will need to complete form P46. The box ticked by the student will determine the tax code applied.
So what will change?
From 6 April 2013, the P38(s) will be withdrawn and all student employees will be subject to PAYE in the same way as other employees. The processes noted below will change with the introduction of PAYE in Real Time (RTI). More information on this will follow soon on our news feed.
If you currently employ students and have previously been using the P38(s) system you will need to obtain the information required on a form P46 for each student employee and submit the information to HMRC either online or using your payroll software. As above, the information provided by the employee will indicate which PAYE code should be applied to the wages payments.
Note: Employee national insurance contributions (NICs) should be deducted from payments to students over £146 per week under both the old and the new system, and employer NICs are due on payments over £144 per week.
Further guidance on the payment of student employees can be found on the HMRC website.
For more information or help with understanding payroll, PAYE and NICs please contact us.
