Paying tax

  • If you earn enough money, you have to pay tax, however old you are
  • While you’re at school, you probably won’t get anywhere close to earning enough money to pay tax
  • Once you leave school and start working, you probably will have to pay tax and National Insurance

If you earn above a certain amount of money, you have to pay tax. It doesn’t matter how old you are. If you’re at school full time, you probably won’t have enough time to earn enough money to pay tax. Once you leave school and start working, this will probably change.

What is income tax?

Income tax is a payment you make to the Government, based on money that you earn. It is used to fund things like hospitals, schools and public housing, and to make investments in things that we all use like roads.

When do I have to start paying income tax?

Income tax is something that you have to pay once you hit a particular level of earnings. It doesn’t matter how old you are, although if you are at school it’s unlikely that you would be working enough hours or get paid enough to pay income tax. Once you have left school and are working, you may well earn enough to pay tax.

If you are 16 or 17, your minimum hourly rate is £4.05. If you are being paid at this rate you probably won’t earn enough to pay tax. You need to be earning around £958 a month (£987.50 from April 2018) before you will have to pay income tax.

How much income tax do I pay?

Income tax is a percentage of your earnings. You don’t pay anything on the first £11,500 you earn in a year (£11,850 from April 2018). You pay 20% on anything you earn between £11,501 and £45,000 (£46,350 from April 2018). You pay 40% tax on anything you earn that is over £45,000 and less than £150,000. These levels change every year. You can check the most up to date position here.

How do I pay Income tax?

Your employer will take off income tax and national insurance and pay that to the government before you receive your pay. You will receive your ‘net’ pay.

If you decide to work for yourself as a ‘freelancer’, you will still have to pay income tax but you must work out how much you have to pay and submit a tax return. This is called ‘self-assessment’.

What is National Insurance?

National Insurance is another payment you must make to the Government once you start earning a certain amount of money. By paying National Insurance, you build up your entitlement to receive state benefits such as maternity pay and your state pension. You only start paying National Insurance once you start earning the National Minimum Wage.

How much National Insurance do I pay?

You pay National Insurance once you earn more than £157 per week. If you earn over £157 and up to (and including) £866 per week, you pay National Insurance at 12% of your earnings. If you earn over £866 per week, you pay of your earnings on everything above that level.

What other types of tax might I have to pay?

There are lots of different taxes used by the Government to raise money.

  • When you buy a house, you have to pay something called ‘Stamp Duty’ which is related to how much you pay for the house.
  • When someone dies, ‘Inheritance Tax’ may be payable on the money they leave
  • If you own more than one house, and sell one of them, you might have to pay something called ‘Capital Gains Tax’ on the difference between what you paid for the house and what you sold it for.
  • If you have a company, the company will pay corporation tax on money that the company earns