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Not quite!
What you state as "the new rule" is actually the old rule. If a P38(s) student works outside the holidays they must fill in a P46. In fact if a student joins on a P46 in July having not worked in that tax year they will get a full 810L tax code and can earn up to £4000 without paying tax by the end of September.
Common sense bites the dust (yet again)
So yet again the majority will be penalised by a measure designed to stop tax evasion by a small minority.
If HMRC policed the PAYE system properly, they could easily identify the people that get it wrong rather than withdrawing a very useful form that has been a rare example of common sense in the tax system.
Maybe I'm being cynical, but might they be hoping that only a small minority of students who have had tax deducted unnecessarily will bother applying for refunds? Most probably don't even know what a personal allowance is.
Confusing?
"Currently, employers who employ a student solely during their summer, winter or Easter holidays may be able to pay them without having to deduct PAYE tax. "
"Under the new electronic regime employers who employ a student at any time other than their normal holiday periods, or for a student who works during and outside their holidays, must operate the normal PAYE procedures that are used for any other employee."
So what has changed? The P38 regime applies only during holidays and the article says that the new regime applies when a student works outside their holidays. Is it me or are these two ways of saying exactly the same thing?
Yes, confusing!
The current rules are that a student can be paid under P38(S) rules only if they are working solely in their holidays and remain under the tax threshold. If they step outside these limits then a P46 has to be done, dated back to the start of their employment or the tax year, whichever is later.
My contention is that the P38(S) has always been anachronistic and an unnecessary confusion, as a student who joins at the start of the summer holiday and fills in a P46 will tick box A and hence will probably pay no tax anyway - and if they do pay tax then they wouldn't have been eligible to use P38(S) anyway! Similarly if a student works at Easter and then again in the summer they are unlikely to pay tax under P46 that they would have avoided under P38(S).
Personally I am very happy to see the back of P38(S), as it removes a complication we can do without and disadvantages almost nobody as far as I can see.
It disdvantages us
We employ quite a lot of students in school holidays to staff a small visitor attraction and the P38 system means my wife can deal with their wages in cash with next to no paperwork. Now we will have to pay them via our payroll bureau which will add significant costs, and frankly it's just one more damn thing and as small business owners my wife and I are so p*****d off with it all that it's probably the last straw. The visitor attraction has always taken reasonable money but it's never made much profit, the costs are just so high, and we reckon it pays us less than the minimum wage to run it. Every time the costs are shoved up by new rules or charges we make a bit less and get a bit nearer to saying we'll stop.