Subject of debate for a long while the new proposals for the taxation of working students has now been finalised. These changes will replace the existing P38(s) system with effect from April 2011.
The new system is to make the current regime more straightforward and avoid the situation where students whose taxable income does not exceed their personal allowances will not be taxed unecessarily, resulting in an reclaim for tax deducted. It also aims to clarify the situation regarding term time and holiday working.
There should be a reduced administrative burden on the employee / employer too.
Students over 16 and in full time education will be eligible for a new tax code when completing a new style P46. And they will probably be given a new tax code with a new suffix, 647D for example.Employers will operte PAYE similar to any other emplyee. Tax will only be deducted once earnings exceed the personal allowance level.