16 yr old (in FT education), earnings above £12500

[James YT]

Hi, completely new to the world of tax so I’m looking for advice with regards to declaring my earnings and paying whatever I owe to the taxman.

I’m 16 years old, currently in full-time education studying A-levels. I run a gaming YouTube channel which has become way more successful than I ever anticipated.

My channel provides me with an income through ads and I receive a monthly payment earned through a Google Adsense account (in my Mum’s name as I’m under 18.) I also receive additional income from sponsor deals and some YouTube consultancy work (e.g other youtubers wanting to grow their channel)

For the tax year 2019-20, my profit after expenses was £16,000, which is the first time I have exceeded the personal allowance threshold. (Should have I declared previous years?)

I assume that despite being in full-time education, I am due to pay tax on this income so wondered what I need to do? Is there anything in particular I need to be aware of given my unusual (so I'm told by Mum ) situation of being in FT education but earning a taxable income?

Also, what expenses can I claim for? To do what I do, I have invested in the last year in PC and audio equipment as well as having digital subscriptions which I use to help run my channel. Can I claim such items as business expenses?

Thanks in advance,

James

[Lambs]

J,

You are right that if your taxable income - including your profits from self-employment - exceeds your tax-free Personal Allowance then you will have tax to pay. I am assuming you are entitled to claim Personal Allowances (the vast majority of people in the UK are so entitled).

If you are now 16 then in the previous tax year you will have been under 16 at the beginning of the tax year. You will start to have to pay Class 4 self-employed NICs from the tax year when you were already 16 at the beginning (from the sound of things probably 2020/21 but maybe not if you turned 16 only in the last few days - the tax year starts on 6 April each year).

If self-employed, you are obliged to pay your Class 2 self-employed NICs "stamp" (this is the part that earns you entitlement to State Pension) once you turn 16 - this is c£3 a week but you now settle it on an annual basis rather than across the year.

You must become familiar with:

Turnover - your total income before any expenditure

Less - any tax-allowable expenditure

Equals profit for tax purposes

At this profit level - and unless you expect your profits to ramp up significantly in the coming years - it will probably be simpler to simply work your accounts period end to coincide with either 31 March or 5 April (most people choose 31 March because it is more straight forward)

I am not sure whether it is your profits or your turnover that hit £16k in 2019/20. If it's turnover that was £16k then you have to work out your taxable net profit first in order to determine if you actually have a tax bill to return and pay in the first place.

But if it was indeed your net profit that was £16k in 2019/20 (say turnover of £20k less £4k in allowable expenses = £26k net taxable profit)

Then yes, it looks like you will have a tax bill of £700:

Profit £6k - Personal Allowance £12.5k = £3,500 @ 20% Basic Rate = £700

Plus a smidge of Class 2 NICs - how much will depend on your birthday

You will need to notify HMRC of your chargeability no later than 5 October 2020 so that you are on the Self Assessment system (you could do it much sooner but if you notify them AFTER 5 October then you could be fined).

There is no legal obligation to notify HMRC about earlier years so long as you didn't actually have a tax liability in those earlier years. (But where they are still in time to send you a tax return for an earlier year and they issue you with such a notice to file, then you basically still have to complete and submit that earlier return even, if your tax liability was nil). Generally speaking, your 2019/20 tax return and payment will have to be settled by 31 January 2021. This year, thanks to the Coronavirus, the usual dates may be changed.

The kind of expenses you mention seem to be deductible. Basically it is stuff that you use / spend in order to generate trading income. It is likely that your pc and audio equipment are actually capital expenses but will still be allowable under Capital Allowances/ the cash basis.

I don't know if you pay for broadband / telephone / mobile phone or towards living expenses.

However you will have to adjust (restrict) any expenses claim to reflect any private use of (say) 'phone, pc, etc., so that you are in effect claiming only the business proportion of such expenditure. There may be modest costs to claim for the use of your home for business (assuming you pay household bills; if not then you will struggle to claim); also possibly advertising, stationery, and similar.

I trust this is useful.

With regards,

Lambs

[James YT]

Many thanks Lambs for your detailed reply, that has helped.

I'd completely overlooked NICs but from you what you've said, I won't be required to pay those for the 2019-20 tax year as my 16th birthday was in August 2019.

A further question I now have is related to expenses. For the capital purchases e.g PC components, audio equipment, these totalled around £2500 during 2019-20 and I will claim those as tax-allowable expenditure. Most of those capital items were ordered from Amazon by my Mum due to her having an Amazon Prime account (for faster delivery). I reimbursed her for the money spent but obviously the receipts for those items are in her name. Is this likely to be a problem and should I from now order everything related to my business in my own name so as not to muddy the waters?

Many thanks,

James

[Lambs]

J,

You will be liable for a small amount of Class 2 NICs for part of the year from August to 5 April 2020.

As regards proving your expenditure, so long as you have documentary evidence that clearly shows your having reimbursed your mother for specific items then you should be OK. Usually bank statement etc showing you transferring funds to her for same / similar amount.

So long as you can clearly show reimbursement like this then there shouldn't be a problem with your continuing to use your mother's Prime account but you could add your bank card details as an additional payment method on her account? Then there would be no doubt.

Hope this helps,

Lambs

[James YT]

I do have bank records showing reimbursements for the exact amounts paid to my Mum.

And thanks for the heads up about the Class 2 NICs.

Thanks again Lambs, much appreciated.

James