Thousands of UK students planning to supplement their income by working during the summer holidays should ensure that their employer issues them with a P38(S) form when they start work, warns Richard Mannion, national tax director at Smith & Williamson, the accountancy and financial services group.

“If the student does not complete the P38(S), he or she will be taxed under the normal rules for new employees who have no P45 form,” Richard says. “This involves use of the emergency tax code, which means that the student will pay tax on any amounts paid to them above £125 per week.”

“With the minimum wage for 18-21 year-olds being £4.83, an employee on this amount would only have to work 26 hours to be subject to tax. A student earning £5 per hour, working 40 hours a week would pay nearly £15 per week under the emergency tax code.”

Only students on a UK course until at least the end of the tax year (5 April 2011) qualify for the P38(S). In addition, they can only work during school or university holidays and their total earnings and income from other sources during the tax year cannot exceed £6,475.

Richard says: “Where a student has overpaid tax in this way, they will need to write to HM Revenue & Customs to request a refund. This can take time to obtain, which can prove tough for students who typically don’t have a lot of spare cash. Students planning to work during the summer holidays should be particularly aware, as it is much better to learn this lesson and avoid paying the tax in the first place.”

HMRC recently issued a consultation document which threatens the future of the P38(S) scheme, but no changes will be made until April 2011.