The Young Founder's Tax Primer (UK)

The Young Founder's Tax Primer (UK)

Tax is not exciting. But understanding the basics now will save you stress, money, and potential fines later. The good news: UK tax rules for young entrepreneurs are more straightforward than most people think, and the chances of you owing any tax in your first year are low.

This guide covers everything a UK-based teen founder needs to know. No jargon, no scare tactics — just the facts.

The Most Important Number: £12,570

The UK Personal Allowance for the 2025/26 tax year is £12,570. This is the amount you can earn before you pay any income tax at all.

That means if your total income from all sources (business profits, part-time jobs, interest on savings — everything) is below £12,570 in a tax year (6 April to 5 April), you owe zero income tax.

For context, £12,570 per year is over £1,000 per month. If your teen business is making more than £1,000 per month in pure profit (after expenses), congratulations — you are doing exceptionally well and should probably talk to an accountant. For most young founders, the personal allowance means you will not pay income tax.

Do You Need to Register with HMRC?

You must register as self-employed with HMRC if:

• Your trading income (revenue, not profit) exceeds £1,000 in a tax year

You do NOT need to register if:

• Your total trading income is below £1,000 in the tax year

This £1,000 threshold is called the Trading Allowance. It is a separate thing from the Personal Allowance. The Trading Allowance means that if you earn less than £1,000 from self-employment in a year, you do not need to tell HMRC at all. No registration, no tax return, nothing.

Example: You sell candles at school fairs and make £600 in revenue over the year. You do not need to register with HMRC or file a tax return.

Example: You run a tutoring business and earn £1,500 in revenue over the year. You need to register as self-employed with HMRC, even though your profits (after expenses) might be well below £12,570.

How to Register (If You Need To)

If your trading income exceeds £1,000, you need to:

• Register as self-employed on the HMRC website (gov.uk/register-for-self-assessment)
• You will receive a Unique Taxpayer Reference (UTR) number by post within 10 working days
• File a Self Assessment tax return by 31 January following the end of the tax year
• Pay any tax owed by 31 January (but remember, if your profit is below £12,570, you owe nothing)

Important: There is no minimum age to register as self-employed in the UK. Under-18s can and do register. HMRC does not care about your age — only your income.

If you are under 16, a parent or guardian may need to help you register, but the registration is in your name.

Trading Income vs Profit: What Gets Taxed

You are taxed on your profit, not your revenue.

Profit = Revenue - Allowable Expenses

Allowable expenses are the costs of running your business. For teen founders, this typically includes:

Not allowable:

• Your daily commute to school
• Clothes (unless they are a uniform or costume specifically for your business)
• Food you eat yourself
• Fines or penalties

Example calculation:

• Revenue: £1,800
• Allowable expenses: £700
• Profit: £1,100
• Tax owed: £0 (because £1,100 is below the £12,570 Personal Allowance)

Even though you earned over £1,000 and needed to register, your actual tax bill is zero.

National Insurance Contributions (NICs)

National Insurance is a separate payment from income tax. It funds the NHS and state pension. As a self-employed person, you need to know about two types:

Class 2 NICs

• Rate: £3.45 per week (2025/26)
• You only pay if your profits exceed the Small Profits Threshold of £6,725 per year
• Below £6,725 profit? You owe nothing.

Class 4 NICs

• Rate: 6% on profits between £12,570 and £50,270
• You only pay if your profits exceed £12,570 — the same as the income tax threshold
• Below £12,570 profit? You owe nothing.

Bottom line for most teen founders: If your annual profit is under £6,725 (which is £560/month), you pay zero National Insurance. If your profit is between £6,725 and £12,570, you pay a small amount of Class 2 NICs (roughly £180/year) but no Class 4 and no income tax.

Record-Keeping: What You Must Save

Even if you owe no tax, you must keep records of your income and expenses if your trading income is above £1,000. HMRC can ask to see them at any time, and you must keep them for at least 5 years after the 31 January filing deadline.

What to keep:

• All invoices and receipts (paper or digital — photos of receipts are fine)
• Bank statements showing business transactions
• A record of all sales (date, item, amount, customer if applicable)
• A record of all expenses (date, item, amount, supplier)

The simplest system: Create a spreadsheet with two tabs — "Income" and "Expenses." Log every transaction as it happens. At the end of the tax year, the totals are your revenue and your allowable expenses.

Keep it simple. Keep it up to date. Do not try to reconstruct six months of transactions the night before your tax return is due.

VAT: Almost Certainly Not Your Problem

You only need to register for VAT if your turnover (revenue, not profit) exceeds £90,000 per year. This is extremely unlikely for a teen business. If you are somehow approaching this number, you need a proper accountant and possibly a business partner twice your age.

For now, ignore VAT entirely.

The Tax Year Calendar

Tip: If you register for Self Assessment, file your return as early as possible — you can file from 6 April, and doing it early means no January stress.

Common Questions

"Do I need to tell my parents?"

Legally, no. Practically, yes. If you are under 16, you may need a parent to help with registration. And even if you are 16+, having a parent who understands your tax situation is helpful — especially if HMRC sends letters to your home address.

"Can I pay less tax by putting money into savings?"

No. Tax is calculated on your profit for the year, regardless of what you do with the money afterwards. Saving is smart, but it does not reduce your tax bill.

"What if I make a loss?"

If your expenses are higher than your income (you made a loss), you can carry that loss forward to offset against future profits. This means if you lose £500 in year one and make £2,000 profit in year two, you only get taxed on £1,500. Keep records of losses carefully.

"Do Futurepreneurs funds count as income?"

The funds you raise through Futurepreneurs are investment/backing for your business, not sales revenue. However, the money you earn from selling products or services using those funds IS taxable income. The backing itself is not — it is more like a grant. Keep the two separate in your records.

"What about selling at school?"

Income from selling at school is treated the same as any other trading income. If your total trading income for the year exceeds £1,000, you need to register. The location of the sale does not matter.

Your Tax Checklist

• Estimate your total trading income for the year
• If it will exceed £1,000 → register as self-employed with HMRC by 5 October
• Keep a simple spreadsheet of all income and expenses
• Save all receipts (take photos — store them in a folder on your phone)
• If your profit will exceed £6,725 → budget for a small Class 2 NIC payment
• If your profit will exceed £12,570 → speak to an accountant (this is a good problem to have)
• File your Self Assessment by 31 January if registered

The Bottom Line

Most teen founders will never owe a penny in tax. The £1,000 Trading Allowance and £12,570 Personal Allowance provide generous headroom. But understanding these rules from the start means you will never be caught off guard, and you are building habits that will serve you for your entire career.

Keep records, know the thresholds, and if in doubt, check gov.uk/self-employed or ask a trusted adult. Tax is not scary — it is just maths with a deadline.