Take a crash course in summer job finances

Whether they're burger flipping or fruit picking, students will be better off with a degree of tax awareness, says Sam Dunn
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The Independent Online

The seed of many a high-flying career has been planted in the rather more humble realms of the summer job.

Of course, burger flipping and pint pulling won't always lead to a seat on the board. But holiday work can at least be a financial lifeline for students looking to repair their battered bank accounts.

According to a Royal Bank of Scotland (RBS) survey, eight out of 10 undergraduates plan to work over the summer, aiming to earn an average of £1,568 each - enough to cover the cost of nine weeks' rent and other living expenses when they return to their studies.

Jessica Reid, 20, a second-year music student at Leeds University, is earning £4.50 an hour in a city centre bar before starting guide work at the Edinburgh Festival in August.

"On average, I hope to earn about £130 a week to help pay term-time living costs and rent," she says.

Most students will graft in bars and restaurants (23 per cent) or shops (16 per cent), according to the RBS survey. While the lucky ones may earn as much as £10 an hour helping out in, say, a legal firm, most have to settle for far less. The average wage in the service industry is less than £5 an hour.

Whatever you earn, make sure you get every pound you are entitled to. Thanks to the minimum wage, you will at least be protected from abjectly low pay. Don't accept less than £3.80 an hour if you are between 18 and 21 years old or £4.50 if you're over 22 - it's your legal right.

Equally important are your income tax and national insurance contributions (NICs), which will depend on your earnings.

Like every other employee, you pay income tax only if you earn more than £4,745 in this tax year (6 April 2004 to 5 April 2005). Since your summer job will last three months at most, it's highly unlikely you will earn more than your personal allowance.

Similarly, you make NICs only if you earn more than £91 a week; any income above this and you'll pay 11 per cent of it to the Treasury.

It all sounds simple enough. But unless you tell the Inland Revenue that you are a student, you will be taxed under an "emergency code" at 22 per cent until the Revenue is informed of your proper tax status.

To avoid this, you must file a special tax form, P38(S), which should be available from your employer or at your local tax office. (You will need your national insurance number to complete the form.)

Unfortunately, not every boss will be efficient enough to have a P38(S) ready when you start work. In this case, you'll have to join the company's Pay As You Earn (PAYE) scheme, the UK's principal tax regime. However, you should be able to claim back the tax by filling in a P46 form as soon as possible, and handing it to your employer. Assuming you have no other income, the taxman will then make adjustments and, hopefully, include a refund in your next payslip.

To make sure you take action where necessary, keep an eye out for tax code BRM1, which indicates that your tax status is stuck in emergency mode.

Note, too, that if you plan to carry on working once the summer holiday is over, you won't come under the P38(S) form and will have to fill in the P46 instead.

Watch out for lazy employers, as well. "Our big concern is that employers don't bother to fill in the right forms and students get hit by emergency tax because they are only there for a couple of months in the summer," warns Helen Symons, vice-president for welfare at the National Union of Students.

Some employers may offer cash in hand with NICs deducted, particularly if you're doing agricultural work. This is all above board, as long as you have handed over your tax form and earn less than £4,745.

When you leave, get a P45 from your employer in case you need to show the taxman your total earnings for the year.

Of course, what you do with your earnings is up to you. But, as Philippa Gee of independent financial adviser Torquil Clark points out, reducing an expen-sive overdraft should be your top priority, and will put you in your bank's good books. Any spare money could be put in a tax-free mini cash ISA.

"At the moment, you'll be doing a lot of taking from your bank while they do a lot of giving," says Ms Gee. "If you can show that you can save wherever possible, that will go in your favour later on."

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