Tax change to hit student employment
Students and those who employ them are facing a legislation change that will impact on temporary jobs within less than 12 months, accountants have warned.
From next April students undertaking holiday work will have to have income tax and National Insurance deducted from their wages.
Ian Davies, partner at Tranter Lowe Chartered Accountants, in Wellington, said this had implications for both sides, the results of which could not yet be fully foreseen.
Under the current system, employers can take on a student and operate an opt-out from PAYE tax as long as the employment is solely during the student's breaks from education, although National Insurance Contributions still have to be deducted in most cases.
From April 6, 2013 however, students will have to be treated in the same way as other employees for income tax and NIC purposes, though they will be able to claim back what is deducted if they do not take on more paid work in the same tax year.
The change has come about due to the introduction of Real Time Information (RTI), which involves PAYE records being submitted online and which has led to the planned withdrawal of the paper form (P38S), which is used to apply the student opt-out.
Mr Davies explained: “From the employers' point of view there is an administrative change needed, especially where they have been used to not needing to implement PAYE for student employees and they need to be aware of and prepare for this. What is less clear is the effect it will have on this part of the casual job market. Is the impact going to be in the pocket of the students, even though they can often claim back what they have paid, or will the market dictate that employers need to make their terms more attractive to compensate for the extra complexity of the system?
“We all know that, for various reasons, people don't always get around to claiming back what they are entitled to, especially when it can involve dealing with a tax system that will be be alien to many students. Any impacts of this change will only become apparent after it has been in place for a while, I suspect, but it's important for employers to know that it's coming, to be prepared to include student employees in their PAYE system and to not fall foul of the change with the tax office.”
