Do Apprentices Pay Tax?

An apprenticeship can be a fantastic way to learn skills and get on the path to a fulfilling and rewarding career. Apprenticeships aren’t just for jobs like plumbers and carpenters. They are becoming increasingly popular in office based careers such as accounting, marketing and financial services. An apprenticeship can be a great alternative to university, but it's no secret that apprentices are not well paid.

Because their income can be so low, a common question that gets asked is whether apprentices have to pay income tax? The answer to this question is that, like anyone else, it depends on how much they earn. There is no specific reduction in income tax that’s offered to apprentices, but because they can be on very low wages initially, they could be below the Personal Allowance and therefore not have to pay any income tax.

In this article we’ll explain the National Minimum Wage for apprentices, and show you how this compares to the Personal Allowance for income tax. You should see that whilst apprentices aren't technically exempt from income tax, they may not have to pay it anyway.

What is the Minimum Wage for Apprentices?

The National Minimum Wage for apprentices in the UK is £4.81 per hour. This is the same whether you are between 16-18 or over the age of 18. This figure is significantly below the National Living Wage for people 23 years and over which is £9.50, and is even lower than the National Minimum Wage for non-apprentices over 18 which starts at £6.83 from ages 18-20.

If we’re looking at the income tax thresholds and bands, the figures that the government gives us are based on a full year, which can make it difficult to compare the hourly figures quoted on the national minimums. To make this a bit easier to compare, let’s consider what an apprentice working full time is likely to earn. For an apprentice earning the minimum of £4.81 per hour and working 37.5 hours per week, this equates to an annual income of £9,379.50 per year. 

What is the Personal Allowance?

The Personal Allowance is the amount you can earn before you start to pay any income tax. This changes over time, but for the 2022/23 tax year this personal allowance is £12,570. That means that if you earn below this amount you will not be required to pay any income tax.

So as you can see, whilst there is no specific exemption from income tax for an apprentice, those who are paid the minimum wage for apprentices will be earning an income that is below the threshold when income tax needs to be paid. At this level of income, apprentices also won’t need to pay National Insurance Contributions, which means the total amount that is earned could be paid into your bank account without any deductions.

Can an Apprentice Be Paid More Than The Minimum Wage?

Yes! Whilst you won’t pay any Income Tax or National Insurance Contributions if you are paid the Apprenticeship minimum wage, this is only because the wage is so low! There is nothing to stop a company paying more than the apprenticeship minimum, and in fact many companies opt to pay their apprentices the National Living Wage of £9.50 per hour.

It is well worth trying to negotiate a higher rate than the minimum. If we again look at how these hourly rates equate over the course of a year, being paid £9.50 an hour instead of £4.81 for a 37.5 hour week equates to an annual income of £18,525 instead of £9,379.50! Now you would need to pay some Income Tax and National Insurance Contributions on the higher amount, but it still equates to a huge increase in the amount you receive each month and each year.

Summary

Apprentices are liable to pay Income Tax just like everybody else, however those being paid the Apprenticeship Minimum Wage of £4.81 per hour are unlikely to earn over the Personal Allowance of £12,570. This means that their earnings won’t be high enough to start paying Income Tax, and therefore they won’t have to pay any.

However, it’s always more beneficial financially to earn more money, even if you have to start paying tax. Basic Rate tax is only 20% and even the highest tax band, the Additional Rate Tax band is only 45%, so it makes sense to try to earn more if you can. If you can negotiate what you pay, even if you're an apprentice, it can make a big difference to your finances as the National Living Wage is almost double the Apprenticeship Minimum Wage.

If you’re thinking of becoming an apprentice and you’re worried about living in the low income, this article will help you plan your finances to ensure you’ve got the right budget and plan in place to do the best with the income you have.