Employees that are of school leaving age are entitled to a salary that meets at least the National Minimum Wage. This is an amount that can change every April on an annual basis and will vary depending on the age of the recipient.
According to a government report, around two million employees were paid at or below the National Minimum Wage during 2019. This equates to 7% of the population in the UK.
As with all earnings, employees must pay tax on their income once it exceeds a set amount. The various categories that employees have to pay is shown in tax bands. If they are given a pay rise or change jobs for a higher wage, then they can move into a higher tax band and end up paying more tax.
In this guide, we'll walk you through the amount you will need to pay to contribute to various taxes.
Earnings before £12,570 aren't taxed, but you will have to pay a percentage of any income over that amount. For example, if you earn £9.18 per hour and work 40 hours, you would need to pay 20% of the remaining money past the personal allowance of £12,570. This applies whether you are paid weekly or monthly.
When you start work, you will be given a tax code so that your employer and pension provider know the amount of Income Tax that can be taken from your wages. The amount that you earn will determine which tax bracket you fall into and what percentage you need to pay in tax.
Continue reading to find out the minimum amount that workers in each age category must legally be paid, as well as the tax that employees have to pay on their earnings.
Employees and apprentices aged under 23 years old are paid the National Minimum Wage, which is separated into various categories depending on the individual's age. It is currently set at £9.18 for workers aged 21 to 22, £6.83 for employees aged 18 to 20 years old and £4.81 for employees aged under 18 years old and apprentices.
Workers on minimum wage must be at least school leaving age and can be in any type of job, be it part-time, agency or apprenticeship.
The National Living Wage is a set amount that employees aged 23 years or older must legally be paid. Currently, this amount is set at £9.50 per hour.
Below is a table showing the current national minimum and living wages, as of April 2022.
|23 years or older||21 to 22 years old||18 to 20 years old||Under 18 years old||Apprentice|
In 2019, the UK had the eighth highest minimum wage for adults out of 25 OECD (Organisation for Economic Co-operation and Development) countries. This comparison was made using the National Living Wage in the country and the living costs in the member countries.
Tax bands are used to work out how much tax a person must pay based on their earnings. For example, someone may be earning the minimum wage of £9.18 and working 20 hours per week. In this instance, they would earn £10,202.40 per year and would therefore fall beneath the Basic rate.
Employees earning less than the Personal Allowance (£12,570) pay a 0% tax rate. However, someone on minimum wage who works full-time - which is usually classed as 35 or more hours a week - would generally fall into the Basic rate band. This means that most full-time workers on minimum wage have to pay 20% of their wages in taxes.
Below is a table showing the various tax categories for each pay period, as provided by the government. It includes the minimum wage rate band.
|Band||Taxable income||Tax rate|
|Personal Allowance||Up to £12,570||0%|
|Basic rate||£12,571 to £50,270||20%|
|Higher rate||£50,271 to £150,000||40%|
|Additional rate||over £150,000||45%|
These bands are only for part of the UK, as tax bands are different in Scotland.
Everyone who works is legally required to pay income tax and contribute some of their earnings towards PAYE taxes and National Insurance. These taxes help to fund public spending on national services such as the NHS, the education sector and state pensions.
You do not have to pay tax on finances such as interest incurred from savings and dividends. Those that are self-employed may also be allowed a trading allowance of £1,000 in their first year of earning, which means that this amount is excluded from tax. This also applies to the first £1,000 of rent that a landlord or landlady makes on a property that they own.
Some people can claim Income Tax relief on items such as pension contributions, charity contributions and work or business expenses. You will need your national insurance number to apply for this.
HMRC can offer help and support to individuals who are unable to pay their taxes on time due for a valid reason. You may be able to pay your tax in a Time to Pay arrangement, which will allow you to stagger your payments until you have paid the amount in full.
The timeframe you have to pay your tax will depend on the amount you owe and how much you are earning. It's important to contact HMRC if your circumstances change as this could affect your payment plan.
However, HMRC will ask you to use savings and assets to help pay your tax if you have them before they offer a Time to Pay agreement to you.
There are various actions that HMRC may take if you cannot or refuse to pay the tax that you owe on your income. This includes collecting the tax directly from your wages, selling your possessions and collecting the money from the sale and making you bankrupt.
The methods mentioned above are last resort action plans and HMRC will contact you before they take any action against you. You will need to include the pay reference period so that HMRC can check that you are eligible to pay national minimum wage rates.
The National Minimum Wage is £9.18 for employees aged under 23 years old. Those that are aged 23 years old or higher are instead legally required to earn the National Living Wage or higher, which is set at £9.50 (as of April 2022).
Employees that work full-time on minimum wage are likely to fall into the Basic rate tax bracket and will therefore have to pay 20% of their earnings on any income above the Personal Allowance.
However, if you earn National Minimum Wage and only work part-time, you may fall below the £12,570 Personal Allowance and are therefore exempt from paying PAYE and National Insurance. Your national insurance contributions and how much income tax you have will depend on your personal or financial information.