Gap year students could be eligible for a tax rebate

Monday 18 August 2008

Students planning a gap year should study the tax rules as they may be eligible for a tax rebate. What should you look out for and how can you claim any refund due?

Why might a refund be due and how can you claim it?

If you are a student then you may have been out of work for the first part of the tax year and may not realise that a large part of your personal allowance is still available. The overpaid income tax could be claimed back if you have stopped working and do not expect to work again in the tax year by using form P50. This could provide a very useful lump sum.

Form P50 is available from HM Revenue and Customs' (HMRC's) website and can be accessed by clicking here.

A claim for repayment can also be submitted at the end of the tax year using form R40. Form R40, along with helpful guidance, is also available from HMRC's website and can be accessed by clicking here.

What is the tax position if you work abroad?

In most cases, students who work abroad are still treated as UK tax residents and pay UK tax on overseas earnings, above their personal allowance. However, many may be taxed by their overseas employer, and this can lead to complications. Some individuals may be able to claim the tax back directly from the foreign authorities, while others will have their foreign tax credited against their tax liability in the UK and will have to apply for a rebate from HMRC.

What other points should you be aware of?

Tax planning is likely to be a low priority if you are an A Level student looking forward to an exciting working holiday or a full gap year abroad. However, by following some simple steps you could be in line for some extra money, either through a rebate or simply by avoiding paying the wrong amount of tax in the first place. Here are some points you should consider:

• Keep all payslips as it can be difficult for those with temporary overseas employment to prove that tax has been paid
  
  
• If you are working before you leave the UK you should notify HMRC when you intend to leave the country as this may help if there are problems in the future - this can be done by using form P85 that can be accessed by clicking here
  
  
• If you have not worked in the tax year and you do not intend to work while travelling, you will probably not have anything to do before you leave - you can check this by contacting your tax office
  
  
• If you stay abroad for a full tax year (between 5 April and 6 April the following year), you become a non-resident and free from UK tax if you are in full time employment abroad - if you are not in full time employment and are unable to demonstrate that your departure will be permanent then HMRC is likely to treat you are remaining resident in the UK and liable to tax on your worldwide income
  
  
• The period of time spent in one place is important - this will depend on the local definition of tax residence, but stay for 183 days in some countries and you may well be liable for tax in that country, in addition to any UK tax
  
  
• If you have worked over the last few months and are unsure of the date you will return to the UK, it may be wise to complete a tax return for the portion of any tax year from 6 April to the date of departure - this should prevent HMRC from chasing for any unpaid tax or outstanding information
  
  
• If you are planning to work in the UK during your gap year then you will be treated like any other employed or self-employed individual and liable to tax and national insurance contributions

Sheena Hay, a Senior Tax Manager at Grant Thornton says: "Many of those who have just received their A Level results may have started working to save up for a gap year before university and may have been given an emergency tax code. This means that their employment circumstances would not have been taken into consideration when calculating their tax."

Hay continues: "In addition, the PAYE codes for students working over the summer this year are likely to be incorrect following the Chancellor's late increase of the personal allowance. Employers do not need to reflect the updated amount until the first pay period ending on or after 7 September 2008, by which time many students may have finished working and returned to their studies or left for their gap year."

Please click here to contact us if you would like further advice on any of the above.