TAX FOR STUDENT MONEY ADVISERS - PowerPoint Presentation

Slide1

TAX FOR STUDENT MONEY ADVISERS

www.litrg.org.uk

ROBIN WILLIAMSON

& CLAIRE

THACKABERRY

June 2013Slide2

RESULTS FROM RECENT SURVEY

 LITRG recently conducted a survey on new students’ tax knowledge and Andrew Lymer, Professor of Tax University of Birmingham analysed the survey results.Sample size is small but results indicated a lack of tax knowledge and amongst students who thought they understood tax only a small number actually did.Slide3

WHO WE ARELow Incomes Tax Reform Group.

An initiative of the Chartered Institute of TaxationSlide4

Income Tax, working and Pay As You Earn (‘PAYE’)Employment under Real Time Information (‘RTI’)Tax calculations and refunds

National Insurance for employeesLITRG project to help students and their advisers with tax Questions and discussion

OVERVIEW OF SESSIONSlide5

INCOME TAX

Taxable income from:employment

pensionsbusiness profitsrental incomesavings and dividends

Examples of tax-free income:Interest on ISAsCertain (but not all!) state benefits, e.g. Personal Independence Payment (replacing Disability Living Allowance)Slide6

PERSONAL ALLOWANCES 2013-14

Basic personal allowance £9,440Personal allowance income limit £100,000Blind person’s allowance £2,160

Age-related allowances for those aged 65 years and above have changed now basic personal allowance unless:

- born before 6.4.1938 £10,660 - born 6.4.1938 - 5.4.1948 £10,500Income limit for age related allowances £26,100Slide7

LITRG SURVEY RESULTS – PERSONAL ALLOWANCE

Only 28% of students surveyed correctly knew the 2012/13 basic personal allowance.

Answers for the personal allowance ranged from £20- £21,500 per annum.Slide8

RATES AND BANDS OF INCOME TAX 2013-14

Starting rate for savings 10% to £2,790Basic rate 20% to £32,010

Higher rate 40% to £150,000Additional rate 45% above £150,000

Dividends: 10% ordinary rate 32.5% higher rate 37.5% additional rateSlide9

Pay As You Earn (‘PAYE’)

Mechanism for collecting tax and NICs due from wages and salaries of employees or tax from pensionsCumulative principle – with each pay cheque, an appropriate amount of tax is deducted and set out on the payslip, with the intention that by the end of the year the right amount of tax should be paidNIC deductions on a ‘per pay period’ basisOperated by employers and pension providers on instructions from HMRC (Code number issued on ‘P9’)Employees and pensioners (copy code number usually sent by HMRC on a ‘P2’) Week 1/Month 1 emergency codesSlide10

Real Time Information (RTI)New way of collecting PAYE – to be used by most employers from 6.4.2013 (nearly all employers joining the system by April 2014)

Form P45 still existsForm P46 has been replaced by New Starter informationForm P38(S) for students working during vacations only – no longer existsSlide11

LITRG SURVEY RESULTS - Pay As You Earn (‘PAYE’)

54% of working respondents always checked their payslipsbut of this only 44% claimed to know how to check their deductionsand within that 44%, only 57% correctly knew their personal allowance.Slide12

PAYE issues for students

Why are students different to other PAYE taxpayers? LITRG report 2001Unable to work full time Multiple jobs but unlikely to earn over their tax allowances‘Bitty’ or ‘lumpy’ income Negotiations about a ‘student tax code’Changing jobs frequently

Working in more than one job concurrently Other temporary work, e.g. sandwich coursesVacation-only employmentMoving – notify HMRC of change of addressSlide13

PAYE for students

Taking on a job – no Form P46 under RTI; instead ‘new starter information’ is provided to the employerCumulative PAYENon-cumulative ‘Week 1/Month 1’ PAYEMoving jobs – Form P45Agency work Multiple jobs and splitting allowancesForm P38(S) vacation employment no longer existsSlide14

PAYE – common codesPersonal allowance 2013/14 – £9,440

 944LBasic rate deduction (second job?)  BRK codes – hopefully unlikely for studentsTry to ensure that allowances (probably 944L code) are against largest source of earnings; BR on secondary sourcesWatch for duplication of allowances – could lead to an underpayment of tax

Splitting of personal allowanceSlide15

PAYE for students - exampleLouise starts part-time evening work on 1 October 2013, earning around £400 a month. She hasn’t worked before in the tax year so informs her new employer that this is her only job and first job of the tax year. She is given cumulative code 944L. She pays no tax on her wages.

From 1 November 2013, she takes a Saturday job as well, earning another £200 a month. She provides new starter information to say it is a second job. Code BR is applied, so £40 a month tax is taken off her.What can she do? Slide16

PAYE for students – example (2)

By 5 April 2014, she will have earned:£2,400 (evening job) – no tax deducted (‘944L’)£1,000 (weekend job) – £200 tax deducted (‘BR’)£3,400 total earned with £200 tax deducted i.e. Income below £9,440 allowance, so tax overpaidEitherClaim a refund at the end of the year

ORGet HMRC to split her allowances across the two jobsSlide17

PAYE for students – example (3)

Note code 944L was against Louise’s evening job, the larger income source.But what would have happened had she got the weekend job first from 1 October and the evening job from 1 November.By 5 April 2014, she would have earned:£1,200 (weekend job) – no tax (‘944L’)

£2,000 (evening job) – £400 tax (‘BR’)£200 more tax suffered in the yearSlide18

PAYE for students – example (4)

So Louise has earned less money (£200) - but paid twice as much tax in the year.Contact HMRC to review the codes, at least asking them to switch 944L to the larger source. Be ready with personal details – full name, address, date of birth and National Insurance Numberdetails of each employment – PAYE reference number, (from payslips)estimates of earnings from each job for the current tax year.Slide19

PAYE for students – conclusions

Think in advance about total wages and check payslips.Is total income going to be less than personal allowances?What codes are being applied?Contact HMRC to get best codes applied for each job.

Review total income and tax paid at the year end.  CLAIM A REFUND if overpaid. Slide20

LITRG SURVEY RESULTS RECLAIMING OVERPAID TAX

31% of student respondents have had to claim a tax refundOf this 31%, 71% contacted HMRC directly to claim a refundSlide21

RECLAIMING OVERPAID PAYE TAX

In-year Form P50, if stop work for 4 weeks or more Telephone HMRC help line Year endClaim in writingAutomatic reconciliations/tax calculations (‘P800’)Pitfalls of ‘refund companies’ Time limits – 4 years from the end of the tax yeare.g. 2009/10 tax year must be claimed by 5 April 2014Slide22

INTERNATIONAL STUDENTS

Working: PAYE applies, as for other students (refund if leaving the UK?)Income or gains arising outside the UK could create a tax problem in the UKFor most international students of modest means this is not a problem because of double taxation agreementsIf DTA allows, can bring money to the UK for ‘maintenance or education’, e.g. normal living expenses – food, rent etc, course materials and books. HMRC policy generally to ignore up to £15,000pa. Could justify more, e.g. student with disabilities/particular needsCourse fees can be on top of the £15,000.

LITRG migrant website section –international students Slide23

NATIONAL INSURANCE CONTRIBUTIONS (NICs) for employeesClass 1 NICs payable on employed earnings

Class 1 primary contributions payable by employees, secondary contributions by employersClass 1A & 1B contributions payable by employers on employer-provided benefits in kindSlide24

CLASS 1 NICs RATES AND LIMITS 2013-14Lower earnings limit (LEL) £109 per week

Primary/secondary threshold £149/£148 per weekUpper earnings limit (UEL) £797 per weekSlide25

CLASS 1 NICs RATES AND LIMITS (2)

Below LEL, nil contributionsBetween LEL and primary threshold, nil contributions but benefits entitlementBetween primary threshold and UEL: 12% primary rate, 13.8% secondary rateAbove UEL: 2% primary rate, 13.8% secondary rateSlide26

LITRG SURVEY RESULTS-NATIONAL INSURANCE CONTRIBUTIONS (NICs)Only one respondent stated the Class 1 primary threshold correctly.

Survey results indicated confusion between the LEL and the primary threshold.Slide27

CLASS 1 NICs RATES AND LIMITS - Example

Pay period basis of calculation, not cumulativeCalculated job by job, unless connected employmentsSue works at a pub and is paid weekly. She earns £180 in one week, so her employer takes off employee contributions of £3.72 (£180-£149, @ 12%). The next week, she does fewer shifts and only earns £110. She doesn’t have to pay any NIC that week, but doesn’t get a refund of the £3.72 she paid the week before. Slide28

Extra guidance on student tax issues

www.taxguidesforstudents.org.uk – LITRG project, launching in early 2014www.litrg.org.uk/migrant - international studentswww.revenuebenefits.org.uk – for tax credits information (though many students, particularly those on full time courses, may not be eligible)Slide29

QUESTIONS

AND OPPORTUNITY FOR DISCUSSION?Slide30

TAX FOR STUDENT MONEY ADVISERS

We have endeavoured to ensure that this presentation and any accompanying lecture notes and hand-outs are accurate and reflect the up-to-date position at the time of compilation. However, this is only a simple introduction to tax and NIC and we cannot accept responsibility for the consequences of acting, or refraining from acting, on anything contained therein.

www.litrg.org.uk

ROBIN WILLIAMSON

& CLAIRE THACKABERRY

email litrg@ciot.org.uk