I get asked a lot by parents whose children work in the theatre or in films about whether the children are supposed to pay tax, and what happens about the costs the parent spend in order to get tax relief for these costs wholly & exclusively incurred.
There is a common misconception that children don’t have to pay tax on earnings and therefore tax returns are not done. Unfortunately, this is not the case, and the taxman wants to get his fair share of the child’s earnings.
Everybody needs to pay tax, no matter their age, and like adults, children have the same personal allowance. Normally children don’t work or if they do the pay is low so would not reach the personal allowance. People under 16 don’t pay national insurance so when you add the two together, it comes up with the idea that children don’t pay tax.
A child actor / model / performer effectively is their own business so the guidelines of keeping records showing income and expenditure need to be kept, and the records need to show that the payment was made to the child. If the child is under the personal allowance for all taxable income, there is no need to pay tax, but as soon as it’s likely to go above the personal allowance, then the child will need to be registered with HMRC in order to do a tax return. Once the child turns 16, national insurance kicks in, class 2 and 4 will need to be paid, so registration will have to be done. OK – so the budget of 2016 says class 2 will be disposed of for everybody – but they will find something else.
Whilst we are talking about children, if a parent gives a child money and that money earns more than £100 before tax in interest, then the whole amount (not just the amount over £100) is deemed to be the parent’s income. The parent will be taxed on it. This limit is just for parents and not other family members. If the £100 limit is likely to be breeched, then you may want to consider a tax free investment like a tax free Junior ISA. Always speak to a financial adviser about investments.
Always speak to an accountant or financial adviser before taking any action.