Does a Child Need to Pay Tax on Their Side Hustle
children and taxes
Does a child need to pay tax on a side hustle? It's a question that might have crossed your mind if you're the parent of an enterprising young individual (or if you're one yourself).
In the UK, a child can earn up to £12,570 per year before they need to pay income tax.
However, the UK tax system, with its intricate regulations and exceptions, can be quite complex. Keep reading below; we're here to answer your questions.
table of contents
- What is the minimum age children can work?
- At what age should children start paying tax in the UK?
- When does a child need to register with HMRC for taxes?
- How can I register my child with HMRC for tax purposes?
- When does a child get a national insurance number?
- What is the time limit for registering my child with HMRC?
- FAQs
- Final thoughts
- Article sources
What Is the Minimum Age Children Can Work?
Children in the UK are allowed to work part-time from the age of 13. However, children involved in television, modelling, and theatre have a special exception. They can start working before the age of 13 as long as they have a performance licence.
In the UK, full-time employment is only allowed after reaching the minimum school leaving age of 16. Once they reach this age, young individuals are allowed to work up to 40 hours per week. Employers are required to pay them through PAYE at this stage. When a young worker turns 18, they are then subject to adult rules, such as their entitlement to the minimum wage and other employment rights.
In the UK, age is not the primary factor determining tax obligations. Instead, it is based on one's income. Irrespective of age, individuals who earn more than the personal allowance (£12,570 for the tax year 2023/2024, subject to change in subsequent years) are required to pay income tax.
However, if a child earns income from interest or dividends, these are taxed as if they belong to the parent.
When your child turns 16 or 17, they have the right to receive at least the minimum wage of £5.28 per hour. All employers who are registered must keep a record and report this pay as part of their PAYE responsibilities with HMRC. If a young worker aged 16 to 17 earns more than £123, employers should make deductions accordingly.
School aged children are not entitled to the minimum wage.
When does a Child need to register With HMRC for Taxes?
If your child earns over £1,000 in a single tax year, you must register them for self-assessment with HMRC. However, if your child's earnings fall below £1,000 per year, this income will be covered by the £1,000 trading income allowance. The trading income allowance allows anyone in the UK to earn money from side hustles without having to pay income tax.
The trading income allowance is particularly beneficial for those who have a part-time job or receive income from platforms such as Uber, Deliveroo, gardening services, blogging, selling on Amazon or eBay or pursuing hobby businesses. This means they can earn up to £1,000 without having to pay tax on this income. The £1,000 threshold applies to total earnings (sales income) rather than profits made.
Key Takeaway
If a side hustle earns less than £1,000 per tax year, this is sales revenue; there is no need to pay any tax on it.
How can I register my child with HMRC for tax purposes?
The usual way to register for self-assessment is online at the HMRC website. The problem with registering online is that HMRC will ask for a National Insurance (NI) number. However, a child won't receive a National Insurance number until they reach the age of 16 (see below).
The workaround is to use HMRC form SA1. This can be done by following the first link below, completing the form, printing and sending in the post to HMRC. The form does say that this form should be used for any reason other than self-employment income. However, as mentioned, you cannot register for self-employment without a National Insurance number (please see the second link below). This is a way to get your child into self-assessment as it does not require an NI number.
https://www.gov.uk/guidance/register-for-self-assessment-if-you-are-not-self-employed
https://www.gov.uk/register-for-self-assessment/self-employed
You may want to call the HMRC help line (reopen from the 4 September 2023) to confirm that this is the best approach.
https://www.gov.uk/government/organisations/hm-revenue-customs/contact/self-assessment
HMRC will process the application, and send your child a ten digit Unique Tax Reference (UTR) number. This can take a few weeks. Once you have the UTR, you set up a Government Gateway account for your child. You will be able to view your child's tax record online, and also submit an annual self-assessment tax return for them.
when does a child get a national insurance number?
Your child will be assigned a National Insurance Number by the Government once they turn 16. Typically, they should receive this number around their 16th birthday.
They will start paying National Insurance contributions once they're 16 years old and earn above the annual threshold of £12,570 for the 2023/24 tax year.
If your child is under 16 they do not pay National Insurance. Children only need to be included on a payroll scheme by an employer if they are paid under PAYE and their total income is over their personal tax free allowance of £12,570.
What is the time limit for registering my child with HMRC?
The deadline for registering your child with HMRC for tax purposes is the 5th of October. The registration deadline falls within their second tax year which starts on the 6th April and ends on the 5th April each year. For instance, if your child began working on the 3rd of January 2023, you must register them by the 5th of October 2023. Failing to meet these deadlines may result in penalties.
FAQs
Final thoughts
a child can earn up to £12,570 per year before they need to pay income tax.
If you have any questions about registering your child with HMRC for taxes or how the tax system works, you can call HMRC on 0300 200 3310. Or you can engage the services of a Chartered Accountant.
share this article
WHAT ARE OTHER PEOPLE READING?
The Authority
for UK
Side Hustles
Disclaimer: All content on this website is based on individual experience and journalistic research. It does not constitute financial advice. Sidehustles.co.uk and its authors are not liable for how tips and reviews are used nor for content and services on external websites.
We sometimes use affiliated links which may result in a payment following a visitor taking action (such as a purchase or registration) on an external website. This helps keep Sidehustles.co.uk free. The user experience shouldn’t be any different, and such links do not affect our editorial decision-making. How Sidehustles.co.uk works.
The content of our articles was relevant at the time of publishing. Circumstances change continuously, and caution should therefore be exercised when relying upon any content contained within published articles. All content is for general purpose guidance, and we accept no liability for action taken or not taken in reliance upon the contents of this content. Where appropriate, professional advice should be obtained.
Sidehustles.co.uk is a trading name of Bookcert Ltd, registered in England (company registration number 05782923). Our registered office address is 2 Laurel House, 1 Station Rd, Worle, Weston-super-Mare, North Somerset, BS22 6AR.