With more and more children showing an interest in starting their own businesses I am being asked more often how much a child can earn before paying tax.
So whether you have a budding child-actor or a Mark Zuckerberg in the making, this post will help you to not only educate your child but also stay on the right side of HMRC.
What Age Do You Start Paying Tax?
Despite the common misconception, children in the UK do have to pay tax.
Tax doesn’t discriminate according to age. What may vary is the types of allowances you are entitled to.
That means that you can start paying tax at any age, depending on your earnings.
However, you only pay national insurance once you are 16 or over.
What Tax Does a Child Pay?
Just like an adult, a child who earns untaxed income will be deemed to have their own business and will need to pay:
- Income Tax
- Class 2 and Class 4 National Insurance (once they are over 16)
The amount of each of these they pay depends on how much they earn because there are certain allowances available means certain amounts will be tax-free.
How Much Can a Child Earn Before Paying Tax in the UK?
Just like anyone who is over 18, children are entitled to earn a certain amount each tax year tax-free (this is known as the personal allowance).
A tax year runs from 6 April to 5 April each year.
Here are the current personal allowance amounts:
|Personal Allowance Income Limit||£100,000||£100,000|
Once your childs earnings exceed the personal allowance they will need to start paying income tax on their earnings at a set percentage.
|Personal allowance 0%||£12,500||£12,500|
|Basic rate 20%||£12,501 to £50,000||£12,501 to £50,000|
|Higher rate 40%||£50,001 and £150,000||£50,001 and £150,000|
|Additional rate 45%||over £150,000||over £150,000|
If you want to find out more about income tax and how to work out how much your child will need to pay on their earnings, then this article will answer all your questions.
How Much National Insurance Does a Child Pay?
You only pay national insurance once you are over 16.
So once your child reaches this age they will need to pay class 2 and class 4 national insurance on their earnings.
Again, just like income tax, the amount they pay will depend on their earnings. Here are the current rates you need to be aware of:
|Class 2 National Insurance||£3.05 per week on profits over £6,475 per year|
|Class 4 National Insurance||9% on profits between £9,501 and £50,000|
2% on profits over £50,000
How Do I Find My Childs National Insurance Number?
Your child will be issued with a national insurance number once they turn 16. It should be automatically sent to you around the time of their birthday.
At this point, they will need to start making national insurance contributions whether they work for themselves or someone else.
What To Do If Your Child is In Business
First things first, its time to start helping your child to learn about business basics so they can grow a healthy and successful business.
That includes things like:
- Business planning
- Accounting, bookkeeping and taxes
- Keeping receipts
- Sales and marketing
It’s a whole new set of skills that they won’t be learning at school.
Then if they haven’t registered your child as self-employed and their untaxed income is more than £1,000, you’ll need to help them do that.
Once that’s done they will be sent a UTR number and need to complete a self-assessment tax return declaring all their earnings.
You can find out more about registering as self-employed in this article.