Full-time learning can be expensive. So, with the new academic year upon us, it’s likely that many students will be looking to subsidise their studies with a part-time job. But do students have to pay income tax? And what about National Insurance payments?
Here’s everything you need to know.
How does income tax work?
Income tax is levied on working income. The amount of tax you pay depends on your level of income during the tax year, which runs from 6 April to the following 5 April.
If you live in England, Wales or Northern Ireland, the following tax bands apply for the current 2021/22 tax year:
- Basic rate: you pay 20% tax on earnings between £12,570 and £50,270
- Higher rate: you pay 40% on earnings between £50,270 and £150,000
- Additional rate: you pay 45% on anything you earn above £150,000
The only tax band that’s likely to be relevant to students working part-time is the basic rate tax band. That’s because once workers cross the lower threshold in this band, they begin paying tax. More on this later.
To learn how much tax you have to pay on your salary, see our income tax calculator.
What if I live in Scotland?
Scotland has its own income tax bands – five of them in fact!
There’s a starter rate (19%), basic rate (20%), intermediate rate (21%), higher rate (41%), and an additional rate (46%). For more on Scottish income tax bands, you can visit the gov.uk website.
Do students pay income tax?
There’s a common myth that students don’t pay any tax on their earnings. However, this is untrue. Students are liable for income tax, just like workers.
It’s likely that this myth exists because most students don’t earn enough to pay income tax. That’s because students, like workers, can earn up to £12,570 tax-free under the personal allowance.
As most students are unlikely to cross this threshold with a part-time job, they won’t have to pay income tax.
Do students pay National Insurance?
As is the case with income tax, students are not exempt from paying National Insurance contributions. However, in reality, few students have to pay National Insurance as it’s only payable once earnings exceed £9,569 in the current tax year.
As most part-time students earn less than this, it’s often the case that there’s no National Insurance to pay.
However, it is worth bearing in mind that National Insurance contributions go towards your entitlement to state benefits. For example, you need to make at least 35 years of contributions in order to qualify for the full state pension. For this reason, some students may wish to make voluntary contributions in order to rack up qualifying years while studying.
To learn more, see our article that covers how much National Insurance is.
More student cost-cutting tips
Being a full-time student can be challenging for your wallet, regardless of whether you have a part-time job or not.
Learning ways to cut your bills, make the most of student discounts and budget properly can help you save money. To explore these in more detail, see our article that outlines three tips for avoiding student loan debt.
Looking for a student bank account? See our guide that covers which student accounts have the best cash incentives.
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About the author
Karl is a writer specialising in investing and personal finance content. He regularly contributes articles on savings, bank accounts, mortgages, and loans. He was previously a Personal Finance Writer for MoneySavingExpert.
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