July 19, 2012
Students in Employment
The P38(s) procedure is still with us for the 2011/12 year, but when should it be used and when should a P46 be used instead?
The CWG2 Employers Further Guide to PAYE & Nic’s now calls the P38(S) a Special Procedure – You can use a P38(S) but it does not have to be in this format and can be your own version provided that it covers all the same questions and is only where:
The student is going to work during term holiday periods only
Is a current student attending FE to at least April next year
And they will not earn more than £7475 during the 2011/12 tax year.
A P38(S) or equivalent must be signed for each tax year.
If the answers to all these are Yes then no tax should be deducted but NI contributions may be due where earnings are above the Primary Threshold.
If the Student cannot answer yes to all the above and if they are:
Working outside normal holiday periods
Work both during and outside holiday periods
Then get them to complete a P46. A P46 should also be completed where it is established that earnings are exceeding the current £7475 even where they have signed a P38 (S) or equivalent.
Where a student completes statement A or B you should deduct tax from the first pay made which takes them over the personal allowance level, using 0T month 1 basis. Where statement C is ticked then use BR on a month 1 basis or if the student has not completed a P46 then employer must complete to the best of their knowledge and use 0T on a month 1 basis.**
If a student having completed a P38(S) then continues their employment into term time then get them to complete a P46 and where statement A or B is completed then operate 747L on a month 1 basis. Where Statement C is ticked then use BR on a month 1 basis. If the student has not completed P46 then this must be completed by employer to the best of their knowledge using 0T month 1 basis**
**As these procedures differ from the normal use of P46 then an entry needs to be made in the ‘Tax Code used’ field of the P46.
NB if a student then leaves who has been on a P38(S) then do not complete a P45 as no tax should have been deducted. P38(S) to be retained for three years.