If you employ students in the recognised vacation periods of summer, winter and easter, you can pay them without deducting PAYE tax, provided they meet certain conditions.
However, if you employ a student at any time other than their normal holiday periods (or if a student works for you both during and outside their holidays), then you should operate the normal PAYE procedures used for any other employee.
In order for you to do this each student must sign a form P38S which you can obtain from HM Revenue & Customs. Provided that the student's earnings remain below their Personal Allowance for the tax year, (currently £6,475) then they can be paid without deduction of PAYE tax.
However, you will still have to pay both employer and employee National Insurance if the earnings for each employee exceed the earnings threshold, which is set at £110 per week for the tax year ending 5th April 2010.