Apprenticeships and Tax: What You Need to Know

No one wants to worry about tax. It is a necessary irritation; something that we all have to do, whether we like it or not.

But despite the fact that it is very few people’s favourite thing to think about, it is important to understand how tax affects you. Apprentices will pay tax on the money they earn just like any other employee. If you are starting an apprenticeship you should ensure that you are familiar with the tax system in order to avoid paying the wrong amount.

There are many common misconceptions about the way in which apprenticeships are taxed. This article provides an overview of the main points you should understand – but if you are in doubt about your tax responsibilities you should make sure that you seek independent advice.

Are apprenticeships taxed?

Yes. There is a common misconception that apprentices do not have to pay tax. This is not the case. Apprentices are employees, and they are treated as such for tax purposes. This means that you will have to pay income tax and National Insurance Contributions (NICs) in the same way as everyone else.

You will normally be taxed through the Pay As You Earn (PAYE) system. Under PAYE tax is deducted ‘at source’ – meaning that it is taken straight from your pay packet. You will therefore not normally need to worry about completing a Self Assessment tax return.

You will be assigned a tax code. This combination of letters and numbers will tell HMRC and your employer how much should be deducted from your pay packet. It is important that your tax code is correct.

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How much tax will I pay?

This will depend how much you earn. For the 2017-18 tax year, if you earn less than £11,500 you will not be taxed at all. This is known as your personal allowance. Earnings over the personal allowance will be taxed at a rate of 20 per cent.

If you earn more than £157 per week you will also have to pay National Insurance Contributions. If you earn between £113 and £157 a week, your contributions are treated as having been paid to protect your National Insurance record. As an employee you will pay Class 1 NICs. These are charged at 12 per cent of your income between £157 and £866 per week. Earnings over £866 will attract additional NICs at 2 per cent.

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What about students?

Many people believe that apprentices are taxed differently because they are also studying. It is important to understand that apprentices are employees, and they are taxed as such.

It may also be useful to understand that students completing ‘conventional’ courses such as degrees or A Levels also have to pay tax just like everyone else. If they earn more than the income tax personal allowance, or the National Insurance Lower Earnings Limit, they will have to pay. Confusion arises because the majority of students work relatively few hours during term time, and therefore do not earn enough to exceed their personal allowance.

I think I’ve paid too much tax. What can I do?

It is, unfortunately, common for people to pay the wrong amount of tax – and it is a particularly frequent occurrence amongst those who have recently started work.

There are numerous potential reasons for incorrect tax payments. They tend to occur because HMRC does not have the information it needs to correctly calculate your tax payments. In these cases you may have been assigned a so-called ‘emergency tax code’ which could result in you paying too much tax. Alternatively, your tax code might simply be wrong. Your tax code can be found on your payslip. It is important that this code is correct, as it will determine the amount of tax deducted from your pay packet.

If you think you have paid too much tax, you should call HMRC on 0845 300 0627 and explain the situation. They may ask you to send in documents to support your claim.

It is also important to understand that underpayment of tax can also occur when tax codes are wrong. Indeed, millions of taxpayers have received letters in recent months telling them that they have paid too little tax, and demanding that they make extra payments. You should therefore keep track of your tax payments, and make sure that you are not underpaying in order to avoid a nasty surprise further down the line.

Tax affairs can be complicated, particularly if you are entering work for the first time. If you are in any doubt about your tax situation, contact HMRC or your local Citizens Advice Bureau for more information.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Apprenticeship Eligibility Checker lets you tell us about your situation and find out which UK apprenticeships you qualify for and how to apply. Try it now →