Students

Students who are on courses in the UK

Employers can use a special procedure for employees who are students on courses in the UK working for you solely during their holidays.

The special procedure, known as the P38(S) procedure:

• does not affect the payments of NICs which must be worked out in the normal way
• allows you to pay a student employee:

a) without the need to follow the normal P45 or P46 procedures

b) without deduction of tax, even if the student’s weekly or monthly pay exceeds the emergency code limit

• does not apply to students:

a) who are working for you part-time outside normal holiday times

b) who work for you both during and outside normal holiday times

Where you take on an employee who is a student on a course in the UK and the condition that the student is working for you solely during normal holiday times is not satisfied, you should follow the normal procedures.

For more information go to:

• www.businesslink.gov.uk/payingnewemployees
• see the Employer Helpbook E13(2012) Day-to-day payroll.

If the conditions are satisfied, you can take the following special actions:

• Obtain a form P38(S) which is available to download from www.hmrc.gov.uk

a) Ask the employee to complete the ‘Student’s Declaration’ as soon as they start working for you. Only accept a P38(S) you have issued.

b) You may also obtain the P38(S) information from the student electronically, provided it is exactly the same information as is required by the P38(S). You must put in place adequate safeguards to confirm it was the student who provided the information. And you must maintain an audit trail which is available to HMRC in support of any future query or compliance visit.

Note that qualifying students must fill in form P38(S) for each tax year they work for you. If, therefore, they work for you during the Easter holidays both before and after the 5 April, they must complete two forms P38(S).

• If the student is paid more than the NICs lower earnings limit:

a) work out and account for any NICs due

b) complete a form P11 for NICs purposes entering ‘NI’ in Box L (tax code) on form P11.

• If the student is paid less than the NICs lower earnings limit:

a) record details of all payments you make to the student

b) keep your record of payments for at least three years after the end of the tax year to which they relate.

A student, who completed a P38(S) and their holiday earnings exceed the personal allowance:

If you hold a P38(S), but at any time the total pay in the employment with you exceeds the personal allowance for the year (as shown on the P38(S)) you should send a completed form P46 showing the date of commencement as the original start date of the employment.

Where the employee completes statement A or B you should deduct tax from the first payment made which takes them over the personal allowance level, using code 0T on a Week 1/Month 1 basis.

Where statement C is completed, code BR on a Week 1/Month 1 basis should be applied. If the employee has not completed the form P46, or provided you with the information to fully complete Section one, in time for the first payday in which their holiday pay exceeds their personal allowance, you must complete Section one to the best of your knowledge on their behalf and use code 0T on a Week 1/Month 1 basis.

As this differs from the P46 prescribed codes, an entry needs to be made in the ‘Tax Code Used’ field on the P46. You must send in a P46 for all cases on the employee’s first payday.

A student, having completed a P38(S) continues employment into term-time

If it becomes apparent a student, having completed a P38(S), is going to continue with their employment with you into term-time, send a completed form P46 showing the date of commencement as the original start date. Where the employee completes statement A or B you should deduct tax using the emergency tax code on a Week 1/Month 1 basis. Where statement C is completed code BR on a Week 1/Month 1 basis should be applied. As this differs from the P46 statement A and C prescribed codes, an entry needs to be made in the ‘Tax Code Used’ field on the P46 for these cases.

If the employee has not completed the form P46, or provided you with the information to fully complete Section one in time for the first payday of their employment in term-time, you must complete Section one to the best of your knowledge on their behalf and use code 0T on a Week 1/Month 1 basis.

As this differs from the P46 prescribed codes, an entry needs to be made in the ‘Tax Code Used’ field on the P46. You must send in a P46 for all cases on the employee’s first payday.

When making a payment:

• prepare a form P11 if you have not already prepared one for NICs purposes
• for tax purposes you should:

a) enter on the P11 the total payments to date, and

b) show total tax to date as ‘NIL’ for the week or month immediately preceding the first payment you are taxing.

Setting up a Student Employee, i.e. P38(S) within BrightPay

Follow the procedure for setting up an employee as per the Employee section of this Help file

TAX / NIC’s

When setting up a new employee for the first time, i.e. there have been no payslips processed for the employee, the option to flag if the employee is a Student is available within the Tax & NIC’s screen of the employee details.

For those employees who fulfil the necessary criteria and for whom you hold a completed P38(S) form on file (available to download from www.hmrc.gov.uk) then simply tick the box as appropriate:

Student Employee is a student with P38(S) on file

The Tax Code NI will now apply to payments made to this employee.