Working a student job this summer? Watch out for these tax rules

Summer holidays are not far round the corner, and many young people are gearing up to start their first job this July and August. But although most will only be earning the minimum wage, they could end up paying a fortune in tax thanks to HMRC’s confusing laws.

Because of how tax is calculated in the UK, if a young person earns over £242 per week they may qualify for certain tax deductions on their earnings. But if they quit their job at the end of summer and return to school or university, they may end up overpaying tax.

Below, we explain what school leavers, sixth-formers, and graduates should know about paying tax this summer to ensure you enter the world of work on the right foot.

Tax rules for student workers

In 90% of cases, younger employees – particularly those working a part-time job – will not have to pay income tax. This is because the new National Minimum Wage is so low.

However, students may need to pay income tax if your wages exceed the personal allowance of £1,048 per month (or £12,570 per year).

You may also need to pay National Insurance (NI) contributions if you earn over £242 per week (also known as the primary threshold).

Avoid overpaying tax on your summer job

If a student earns more than the personal allowance each month, they will pay income tax on their earnings. But when the student then returns to school, they may choose to reduce their hours or stop work altogether to concentrate on full-time study.

If this happens, the total annual amount the student has earned in the tax year could drop below the personal allowance threshold, meaning they will have overpaid income tax.

Students should keep a record of their payslips throughout the financial year (between April 6 2024 and April 5 2025) to check if they stay under this threshold.

This is especially important if they plan to start a new part-time job once term-time begins. Young employees must also collect a P45 form from their previous boss and hand it over to the new employer to avoid confusion and ensure accurate tax calculations.

If you earn less than £12,570 by the end of the financial year, regardless of the number of jobs worked, you can claim a rebate (or refund) from HMRC using the P50 or P85 forms.

Bear in mind that this rebate will only apply to income tax paid, not NI contributions, as the latter is calculated weekly rather than yearly.

Student side hustlers

Tax rules are slightly different for student entrepreneurs. Recent statistics show that 4,093 businesses were registered by students in 2022. More school goers are becoming self-employed in order to supplement their student loan or make some extra pocket money.

Tax deductions are normally taken from wages before the employee receives them. This is known as Pay As You Earn (PAYE).

However, if you have made more than £1,000 in earnings as a sole trader, you will need to complete a self-assessment tax return (although you still won’t pay any tax if your revenue is under the personal allowance of £12,570 a year).

The new rules enable HMRC to calculate tax liabilities accurately and ensure you are following the laws. Even those running a small side hustle, such as selling on Vinted or Depop, must register for tax to help the taxman keep track of your business activities.

Where to find tax help

For school students who have just completed their GCSEs or A Levels, or are halfway through a complex undergraduate degree, understanding tax can feel like yet another exam.

There is help available online. Our guides on paying tax have information on how to calculate your tax liabilities. Plus, the government’s HMRC helpline has tax experts on hand to answer your questions (although expect a long wait time).

Still, we’ve broken down the complexities to give you three important need-to-knows:

1. If you earn more than £1,048 per month, income tax will be deducted from your payslip

2. However, if you earn under £12,570 per year, you can claim a tax rebate from HMRC

3. If you are self-employed, register for a tax return if you earn over £1,000 this summer.