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At What Age Do You Start Paying Tax in the UK: A 2022 Guide

Written by, Marija Petkova

Updated April, 17, 2022

At what age do you start paying tax in the UK? 

The short answer is that tax on income is mandatory for all UK residents, regardless of age.

That said, there are some exceptions on how much and when children can earn before the taxman comes calling. 

For more information, take a look at this comprehensive guide we put together. 

Do Children Pay Tax in the UK?

Technically, yes. Children under 18 are liable for tax payments on their income. However, this does not occur too often because children don’t generally earn enough income to exceed the tax-free threshold.

However, if your child receives money from a trust or earns above the personal allowance, they will have to pay tax on their income. This rule does not apply to Individual Savings Accounts (such as a JISA) or a Child Trust Fund (opened before 2 January 2011). 

How Much Can a Child Earn Before Paying Tax in the UK?

Since children do not typically get a salary or have any other income, they could earn up to £12,570 a year without paying any tax. If this income comes from savings, then there are additional tax-free allowances that could enable a child to receive an income of up to £18,570 a year without paying tax.

Tax-free personal allowance 

Like adults, children get an annual personal tax-free allowance, i.e. the amount they can earn before paying any tax. The tax-free allowance is £12,570 in the 2022/23 tax year.

Accordingly, if earnings go over the amount of the personal allowance, income tax will have to be paid at the rate of:

  • 20% on earnings between £12,570 to £50,270
  • 40% on earnings between £50,271 to £150,000
  • 45% on earnings over £150,000

Personal savings allowance

What’s more, UK residents are eligible for a Personal Savings Allowance, which is £1,000 for an ongoing tax year. You may get this allowance if you aren’t paying income tax or if you are paying just the basic tax rate. 

This allowance covers interest from savings in (included but not limited to):

  • Bank and building societies
  • Savings accounts
  • Investment trusts
  • Trust funds

Savings ‘starter rate’

Additionally, low-income individuals may also utilise the savings starter rate to save more money.

For instance, you could earn up to £5,000 before tax if your income is equal to or less than the personal allowance, which could push the total amount earned in tax-free savings to £18,570.

Note: For each £1 earned over the personal allowance, your savings starter rate drops by £1. 

Do Children Pay Tax on Income?

Again, since children rarely work, they do not typically pay tax on income. 

In the UK, self-employed persons may be eligible for a trading allowance. This is a tax exemption up to £1,000 a year for individuals and is available for anyone with trading income from:

  • Self-employment
  • Casual services: babysitting, gardening

If your child’s earnings exceed this amount, you should inform the HMRC about it.

Do Children Pay National Insurance?

In the UK, you pay National Insurance contributions to qualify for a state pension and other benefits. 

Children in the UK can have part-time jobs at 13 (provided they are not working in entertainment, i.e. television, theatre and modelling). 

They could have full-time jobs once they reach the minimum school leaving age of 16

Hence, there’s a tax of NI for 16-year-olds if they:

  • Earn above £190 a week
  • Are self-employed and make a profit of £6,725 and more per year

If a 16-year-old is working full-time, the employer needs to record and report their wages within the running payroll. If they earn over £123 a week, the employer will calculate deductions, such as the National Insurance tax paid on earnings over £190 a week.

Children are rarely self-employed, so in most cases, the NI contribution is paid by the employer. 

Do Parents Pay Tax on Their Children’s Savings?

There’s usually no tax to pay on children’s accounts. However, if the child gets more than £100 in interest from money given by a parent, the parents need to inform HMRC about it. 

If this is the case, then all of the interest, including the amount over £100, is added to the parent’s income and taxed accordingly. 

On the other hand, this £100 rule doesn’t apply to money given by grandparents, relatives, friends or the money in a child’s Junior ISA.

To find out how much you can gift to your children tax-free, read through this insightful article

How to inform the HMRC?

Since April 2016, all income from savings is paid without tax deducted. This means you will no longer have to fill out form R85 when you open an account in your child’s name. 

What Are Tax-Free Savings Accounts for Children?

According to the latest statistics on savings in the UK, young people have stockpiled only £2,481 in average savings, highlighting the importance of having money put aside for them from an early age. 

So, what is the best way to save for your children?

Junior ISA

Although several savings options are available, Junior ISAs are the best choice. 

A Junior ISA is a long-term tax-free savings account for children under 18. These accounts are available for any child under 18 who lives in the UK.

There are 2 types of Junior ISAs:

  • Cash Junior ISA 
  • Stocks and Shares Junior ISA

With a JISA, neither you nor your children will have to pay tax on any interest earned from these accounts. 

Can children have an adult and Junior ISA?

Children can take control of a Junior ISA at 16, even though they can’t withdraw any money before they turn 18. They can also open an ISA of their own at 16 and save money in both accounts. 

Note:  The only ISA under 18s can open is a cash ISA. Only 18-year-olds and above can open a Lifetime and/or Stocks and Shares ISA. 

Child Trust Funds

The Child Trust Fund system came to an end in 2011 and was reintroduced as a Junior ISA. If you opened a Child Trust Fund before this time, you can transfer the funds into a Junior ISA and continue to put money aside for your child. 

Alternative Ways to Save for Your Child

Here are some other ways you can save for your child. 

Premium Bonds

Premium bonds are an investment product provided by NS&I (National Savings and Investments). They basically let you buy bonds between £25 and £50,000 and each £1 bond is entered into a monthly prize draw where you can win between £25 and £1m.

For more information on how to cash in your child’s premium bonds, be sure to take a look at this article

Children’s Regular Savings Account

The regular account is a viable alternative, considering it comes with generous interest rates and you don’t have to pay more than £100 a month. If you’re prepared to make monthly deposits, a regular savings account can be a good option.

Children’s Easy Access Savings Account

Children’s easy-access savings accounts function similarly to adult savings accounts. This can be a great alternative due to flexible withdrawals and the passbook option, where kids can withdraw money by themselves; under the supervision of their parents.

To Sum Up

So, at what age do you start paying tax in the UK? As explained in this guide, it all depends on earnings, not age. For instance, children under 16 in the UK don’t have to pay taxes as long as their earnings don’t exceed the maximum amount of personal allowances, currently £12,570.

However, once they reach 16 years of age, they need to start paying National Insurance if they earn above £190 a week.

                           

Frequently Asked Questions And Their Answers

Do 16-year-olds pay tax in the UK?

16-year-olds pay the tax on their earnings if they make more than the Personal Allowance, which is £12,570 in 2022/2023.

When do you start paying tax on wages?

You are liable for paying taxes once your earnings exceed the Personal Allowance.

Do students pay tax in the UK?

Yes, they do. It’s because students are liable for income tax and National Insurance if they earn their own money from trust funds, work or savings accounts. 

At what age do you start paying tax in the UK?

As mentioned above, anyone who earns over the tax-free personal allowance of £12,570 has to pay taxes on income, including interest on savings.