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What are the tax obligations for entrepreneurs under 16?

A quick guide for young entrepreneurs on the tax free threshold and exemption from national insurance contributions

The internet has made it far easier for previously unlikely entrepreneurial candidates to set up their own small business ventures.

Take teenagers for example. The low start-up capital involved in many web ventures has allowed a whole new breed of practically prepubescent little Richard Bransons-in-the-making to establish healthy turnovers and juicy profit margins.

Now while you may not be able to have a say on who sits in the Houses of Parliament until you’re 18, if you’re earning, you unfortunately still have to line the chancellor’s pocket with all sorts of tax related bank notes.

It can be a bit confusing, however, when it comes to actually working out what you owe. Because you don’t get a National Insurance number until you’re 16, registering as self-employed isn’t as simple – but you still have to do it. If you give the newly self-employed helpline a call on 0300 200 3504 they should be able to sort you out.

How much tax do you have to pay?

You’ll need to pay tax on any annual earnings above the tax free personal allowance. For the year 2013/14 this is £9,440, but make sure you check this as it changes every year (in 2014-15 it will be £10,000). Everything you earn over this amount will be taxed – roughly 20% of it will need to be paid to HMRC.

There are also National Insurance Contributions (NICs) to consider, although this works slightly differently when you’re under 16. Until you reach 16 you are exempt from Class 2 NICs.

You are also exempt from Class 4 NICs if you are 16 or under at the start of the tax year, which runs from April. However, if you want an exemption from Class 4 NICs you need to apply for it. Ask HMRC for form CA2835U. You can request the form by writing to:

HM Revenue & Customs
National Insurance Contributions & Employer Office
Deferment Services
Benton Park View
Newcastle upon Tyne
NE98 1ZZ

So there you have it. It’s not easy, but if you’ve got the skills to run a small business before you turn 16 you probably won’t find a tax return too hard.


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