This is a question I get asked at least once a month. Or, to be more accurate, it’s something I get TOLD once a month, usually by clients calling on behalf of their kids, who’ve taken a summer job and have had tax deducted from their payslip.

“But kids don’t pay tax”… “My daughter’s still in full time education, why is she having tax deducted”… And so on…

For every person who phones me to ask if kids pay tax, there must be 100 others who are Googling it instead. So, this one’s for you:

Your Age (Almost Never) Affects Your Tax

When it comes to paying Income Tax in the UK, people assume children are exempt due to their age and/or being in full time education. Indeed, I remember how incredulous I was when I first had a summer job and had a bit of tax deducted. It wasn’t fair!! 

However, Income Tax is generally based on income, not age. Children can indeed be subject to tax if they earn enough. (However, see below re: National Insurance, because this DOES change depending on your age, for both the young and the old)

In the UK, most individuals, regardless of age, are entitled to a Personal Allowance, which is just over £12,500pa, or around £1,050 per month. This means that children, just like adults, can earn up to this amount without paying income tax.

But if their earnings exceed these levels, then they must pay income tax just like the rest of us. Simples.

National Insurance (NI) Contributions

It’s a tax by any other name, but the Treasury still make it sound rather voluntary, by calling in a ‘contribution’. In all but a few cases, it certainly isn’t voluntary!

For reference, basic rate income tax is 20%, but the main rate of Class 1 NI is 8%, so it’s not trivial.

Like Income Tax, National Insurance is payable once your earning reach a certain level. BUT there’s two important distinctions between NI and Income Tax.

Income vs Earnings

Firstly, whilst Income Tax applies to pretty much ALL your income, NI applies only to “earnings” – that’s your income from either salary, and/or your self-employed profits. Income from dividends, bank interest, rental profits and so on are not considered “earnings” and therefore are exempt from NI.

So, regardless of age, non-earned income is outside the scope of NIC.

NI for Children

This is the one bit of tax law where kids do (in theory) get a break. If you’re under 16, you are exempt from NI on all your earnings. 

That said, it’s a slightly moot point because there’s a limit on the number of hours children can work whilst still in full time eduction, so it’s unlikely they’ll earn enough to hit the NI threshold anyway.

Conclusion

So, do children pay tax? Sometimes. It all depends on their income and its sources. 

Understanding these rules can help families manage their finances more effectively, especially if there’s scope to employ your kids in the family business, getting them some tax-free income and, at the same time, reducing the tax your business pays.

If you’d like to find out more about employing your own kids, read our 3-minute article here

Or, if you want to discuss the tax implications of your child’s current or expected income, please get in touch via the Contact button at the bottom