In short, yes. There is no exemption applied to students working for themselves or in regular employment. However, in the case of the former, you’re only taxed if you earn over a certain level of income.
According to the National Student Money Survey, approximately 79% of students worry about making ends meet. As a result, a large number engage in small-scale self-employment – whether that’s through the selling of second-hand items on eBay or making products to sell through Etsy.
So, to help minimise your tax bill while also keeping you compliant with HMRC, we’ve put together the following guide all about tax for students.
Am I working for myself?
Self-employment is not selling odd bits of old jewellery on online marketplaces now and then. Self-employment is the regular trading of items to make a profit – systematically buying and reselling vintage clothes while enjoying a steady increase in revenue, for example.
If you do fall under HMRC’s definition of self-employment, then you may still be exempt from registering as self-employed. This is provided you earn under the trading allowance of £1,000 each tax year. Only then will you not need to declare your income and pay tax on it.
What if I’m over the trading allowance?
You can call HMRC’s 0300 123 2326 helpline to check your employment status (or the 0300 200 3300 helpline if you are self-employed and have an Income Tax enquiry) if you get stuck.
You’ll also need to file your Self Assessment tax return every year and keep accurate records of your income and expenses going forwards.
How much do I need to pay?
That depends. Most self-employed students won’t need to pay anything. That’s because, even if you exceed the £1,000 trading allowance, there’s still the threshold of your tax-free Personal Allowance to exceed.
Your Personal Allowance is £12,500 for 2020/21. This means that, as long as your earnings fall below this bracket, you won’t need to pay any Income Tax.
If your income exceeds your Personal Allowance, you may find yourself on the basic tax rate. This means you’ll pay 20% tax on all earnings between £12,500 and £37,500. Tax bands and rates change depending on your earnings.
Where we come in
If you’re earning over your £1,000 trading allowance and need to submit a Self Assessment tax return, don’t panic. At GoSimpleTax, we have a simple solution to tax compliance.
With our software, you won’t need to worry about repeatedly filling forms out or relying on accountants. Instead, we help you create a completed Self Assessment tax return from your income and expenditure information – and then we send it directly to HMRC.
We’ll highlight any areas where you could reduce your tax bill too. So, start your GoSimpleTax trial today and see how you can stay on the right side of the taxman.