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Well, not all international students in the UK has to worry about filing for tax returns if they use their foreign income for paying their course fees, to buy study materials, to pay their bills, rent and on food.
Depending on whether the native country of the international student has entered into a double taxation agreement with the United Kingdom the student may or may not have to pay tax on the income they earn in the country while they are a student.
International students who work in the UK along with their studies are expected to pay their tax as well as National Insurance if they earn more than a prescribed amount every year. This is also applicable for international students in the country who work abroad during their holidays.
An international student could be entitled to get a tax refund. The student needs to fill in a form P85 and send it to the tax office before leaving the UK to reclaim the amount. If you fail to file for tax returns on time you’ll end up paying a penalty.
Tax Filing The UK For International Students: The Important Dates To Remember For 2019
- 5th October 2019 – is the final date to register with the HMRC if you are self-employed. Submit the CWF1 form to the HMRC if you are self-employed
- 31st October 2019 – Last date for filing self-assessment tax returns (Paper) for the tax year 2018-2019.
- 30th December 2019 – Last date for filing self-assessment tax returns (Online) for 2018-2019 in the situation where you owe an amount less than 3000 pounds which need to be collected by the HMRC using your tax code.
- 31st January 2020 – Last date for submission of online self-assessment tax returns for 2018-2019
The UK Tax Year
The tax year in the United Kingdom begins on the 6th of April every year and ends on the 5th of April the next year.
The deadline for filing for tax returns for the tax year that started on the 6th of April 2017 and ended on the 5th of April 2018 was the 31st of October 2018 for paper returns and 31st January 2019 for online returns. The dates are more or less the same every year.
An Overview Of The UK Tax System
Depending on your income which is the money you gain or earn while living in the UK you have to pay a certain amount as taxes to the government.
Income tax is paid on the money you earn through self-employment or working for an employer. You also pay taxes on income that is gained through certain benefits and pensions.
While individuals in the UK pay income tax, businesses pay corporation tax to the government.
In the United Kingdom, income tax is collected by the HMRC which is Her Majesty’s Revenue and Customs.
Besides the income tax, an individual is also expected to pay a portion of his/her earnings as National Insurance. This makes an individual eligible for benefits like pensions.
Tax Filing The UK For International Students – Criteria For Paying Taxes
The international students who pursue their education in the UK are affected by certain rules of national insurance and special tax.
Many students end up paying more than what is required as they fail to understand the working of the tax system in the UK. There are many students who are eligible for a tax rebate based on the tax law in the UK
An international student is exempted from taxes in the following situations:
- The native country of the student has entered into a double taxation agreement with the UK
- If their earnings are spent on rent, bills, course fee, and study materials
- Categorizing their savings and gifts from their family as financial support
- Working under the sponsorship of an employer outside the UK for whom the student has to work during their holiday breaks
International students are allowed to bring 15000 pounds each year for maintenance. They can bring more money only if it used for paying a fee for their course.
An international student has to pay taxes in the UK if:
- There is no double taxation agreement between their native country and the UK
- Their earnings are greater than their personal allowance
- They have income outside the UK
- They spend their earnings on things besides their course fee and maintenance.
- They’ve taken the decision to be domiciled in the United Kingdom.
Double Taxation Agreements
To make sure that people do not pay double the amount as taxes on the same earnings, the UK has entered into double taxation agreements with different nations.
This agreement clearly states which country has the right to collect taxes on the different kinds of income that the individual earns while living in the UK.
International students living in the UK will have to consider two to three sets of tax laws before filing for taxes. The laws include that of their native country, the law in the UK and the laws based on the double taxation agreement between the two nations.
The country that has the taxing rights is determined by the double taxation agreement and in a situation where both the nations do have rights the one that has the priority is decided based on this agreement.
Different kinds of income have different rules under this agreement. Certain earnings or gains are exempted from taxes and a tax paid in one country exempts you from paying the tax due in the other nation.
Double Taxation Agreement is also applicable in a situation involving more than two nations. For example, you could be a Canadian who lives in the UK as an international student and has an income from Germany.
The Benefits Of The Double Taxation Agreement
International students who come from a country that has entered into double taxation agreement with the UK can enjoy the following benefits:
- Even if the international student in the UK has stayed over a period of 183 years within a tax year, the student wouldn’t come under a resident status thereby exempting him/her from paying taxes to the UK.
- The student is not required to pay taxes on earnings made in their native land including interest on a bank account or salary.
- The foreign earnings spent on education and cost of living in the UK will also be exempted from taxes under this agreement.
National Insurance Contributions Or The NIC
An international student working in the UK needs to pay NIC if he/she is pursuing a full-time course in higher education.
The student may be eligible for a refund of all the contributions made to NIC if they come from a country that has a social security agreement with the United Kingdom. This does not stop you from enjoying the retirement benefits either if you choose to remain in the UK following your studies.
Repayment Of Taxes
An international student who has worked part-time in the UK during his studies pays his taxes through the Pay as You Earn (PAYE) system. Under this system, the taxes get deducted automatically.
A student who works several jobs usually pays more than what is needed as taxes through this automatic deduction.
The student needs to submit a P85 form with the HMRC after completing his studies and work and before leaving the UK to reclaim the overpaid amount.
This makes the HMRC aware that you are leaving the UK and that you need a repayment of the taxes that were overpaid. In case you’ve overpaid taxes for a period that is above one year, you need to mention that as well.
Steps For Reclaiming The Overpaid Taxes
- Fill in form P85
- Attach part 2 and 3 of Form P45 from the previous employer if you have it along with P85
- Submit all these at the HMRC (Her Majesty’s Revenue Customs)
What If A Student Is Self-Employed?
- An international student who is self-employed needs to register as self-employed within a period of 3 months from starting the work.
- A Self-Assessment tax return form needs to be filled in and submitted to the HMRC every tax year since you wouldn’t have an employer to do it for you.
- You need to clearly mention your income and expenses in the form.
- Based on the details submitted the HMRC will decide on the amount you’ll have to pay as taxes to the government.
What If The International Student Works Only During The Holidays?
The following is applicable for an international student who works only during the holidays, and who earns an income that is below the prescribed personal allowance.
- Paying taxes through the PAYE system
- The NIC has to be made if the earning is higher than the prescribed amount.
When An International Student Leaves A Job?
- Collect the P45 form from the employer when you leave a PAYE job
- Submit it to the next employer to avoid paying a higher amount as a tax in future
Tax Credit Relief
If you belong to one of the nations where the double taxation agreement is not applicable you could get relief from taxes through tax credit relief.
You can reduce the amount paid as taxes to your native country from the total percentage of tax you have to pay in the UK and pay only the remaining amount that is due.
Employment Income In The UK
Employment Income in the UK can be taxed by the UK under the double taxation agreement. In case you have to pay an amount as a tax to your native country as well on the income earned in the UK, you could request your country to stop taking taxes on your UK income or deduct the amount you’ve paid as taxes in the UK and pay the remaining percentage of tax to your native country.
Reclaiming VAT (Value Added Tax) In The UK For International Students
International students in the UK can enjoy the benefits of the VAT Retail Export Scheme. You can reclaim the VAT charges that were taken for your purchases.
However, your country needs to have a double taxation agreement with the UK and you need to convince the retailer that you are an international student who is eligible for this benefit.
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