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    TaxKilnUK tax guidance
    TaxKilnUK tax guidance

    Being an employer → National Minimum Wage

    National Minimum Wage 2025/26 — NLW £12.21 + Mencap Sleep-in Ruling

    From 1 April 2025 the National Living Wage (21+) is £12.21/hour. The 18-20 rate is £10.00, the 16-17 and apprentice rate is £7.55. The apprentice rate applies to apprentices under 19 (any year of apprenticeship) OR aged 19+ in the first year of apprenticeship. The Accommodation Offset is £10.66/day maximum. Authority: National Minimum Wage Act 1998 + National Minimum Wage Regulations 2015 (SI 2015/621). Royal Mencap v Tomlinson-Blake [2021] UKSC 8 held that sleep-in shifts are generally not NMW-eligible work — only the hours actually worked during the sleep-in count. HMRC enforcement: 200% NMW arrears penalty up to £20,000 per worker + Naming + Shaming scheme.

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    Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact HMRC. Read our editorial scope →

    In plain English

    The single biggest trap: the apprentice rate (£7.55/hour). It applies if the apprentice is under 19 (no matter which year of the apprenticeship) OR 19+ but in the first year only. Once a 19+ apprentice completes the first year, the age-appropriate adult rate kicks in (18-20 £10.00 or NLW 21+ £12.21). Many employers leave 19+ apprentices on the apprentice rate after year 1 — that is a NMW underpayment. The other trap is what counts as 'working time' for NMW. Royal Mencap v Tomlinson-Blake [2021] UKSC 8 settled the sleep-in question for care workers: a worker who is required to be at a place of work to sleep, and only works when called upon, is generally only entitled to NMW for the hours actually worked — not the whole sleep-in shift. This reversed the lower-court position and removed an estimated £400m+ of backpay exposure across the care sector. The Accommodation Offset is the only deduction from pay that HMRC allows to count towards NMW compliance — and it is capped at £10.66/day max in 2025/26. Other deductions (uniforms, tools, transport) cannot reduce pay below NMW. Enforcement: HMRC NMW Compliance Officers can investigate any complaint or proactive sweep. Penalties: 200% of underpayment (capped at £20,000 per worker), payable to the Treasury, with the underpayment itself paid to the worker. Public Naming + Shaming list published by HMRC.

    How it works

    Four categories of work

    Time work (paid by the hour); Salaried-hours work (paid annual salary for fixed annual hours); Output work (piecework with rated fair piece-rate); Unmeasured work (everything else, e.g. on-call). Each has slightly different NMW calculation rules — most disputes turn on which category applies.

    Reference period

    Calculate over a 'pay reference period' — usually the month or week of payment, max 31 days. Total pay (excluding excluded items) ÷ NMW-eligible hours worked = pay rate. Must equal or exceed applicable NMW rate.

    What does NOT count as pay for NMW

    Tips, gratuities, service charges (Allocation of Tips Act 2023 reinforces). Reimbursed expenses. Premiums for overtime / weekends / unsocial hours (above basic rate). Loans + advances. Benefits in kind (except accommodation offset). Pension contributions. Deductions for items used in employment (uniforms, tools) — must come out of above-NMW slice.

    Mencap sleep-in ruling

    Royal Mencap [2021] UKSC 8: workers required to sleep at place of work but free to sleep when not called upon are only entitled to NMW for time actually worked (calls, attending residents). The sleep-in shift itself is not 'time work'. This reversed Court of Appeal + closed a multi-£100m backpay risk in care sector. Distinction: night shifts where worker must remain awake DO count fully as time work.

    Apprentice rate logic gate (corrected)

    Apprentice rate £7.55/hour applies in two scenarios only: (a) apprentice is under 19 (any year of apprenticeship); OR (b) apprentice is 19+ but in the FIRST year of apprenticeship. Once a 19+ apprentice passes the first anniversary, age-appropriate adult rate applies (18-20 £10.00; 21+ £12.21). Confirm apprenticeship start date carefully.

    HMRC enforcement

    Self-correction encouraged. HMRC investigations: full payroll review going back 6 years. Penalty: 200% of total NMW arrears (50% if employer self-corrects within 14 days of notice), capped at £20,000 per worker. Naming + Shaming: BEIS publishes employer list with arrears + workers affected. Tribunal route: workers can claim NMW arrears via ET in addition to (or instead of) HMRC route.

    Who this applies to + key conditions

    Statute + manual references

    Primary: National Minimum Wage Act 1998 + National Minimum Wage Regulations 2015 (SI 2015/621) as amended; rates set annually by HM Treasury on recommendation of the Low Pay Commission.

    Related: Employment Rights Act 1996 — contractual underpinnings; National Minimum Wage (Amendment) Regulations 2025 (SI 2025/284) — 2025/26 rates; Allocation of Tips Act 2023 — tips do not count towards NMW

    HMRC manual: NMW Manual (NMW00000+); GovUK NMW guidance for employers

    Case law: Royal Mencap Society v Tomlinson-Blake [2021] UKSC 8 — sleep-in shifts not generally NMW-eligible; Walton v Independent Living Organisation Ltd [2003] EWCA Civ 199 — unmeasured work category

    Common mistakes + traps

    Worked example

    Care Home Ltd: 1 apprentice age 20 in year 2; 1 night-shift carer paid £450/week for 40 awake hours; 1 sleep-in carer paid £75 flat per sleep-in

    Mixed care-sector compliance test. Apprentice in second year of apprenticeship now aged 20. Night-shift carer paid £450/40hr = £11.25/hour. Sleep-in carer paid £75 flat for 9-hour sleep-in; called twice during the night for ~30 minutes total work.

    1. Apprentice age 20 year 2: apprentice rate £7.55/hour NO LONGER applies — must be on 18-20 rate £10.00/hour. Any payment at £7.55/hour from year 2 onward is NMW underpayment requiring backpay.
    2. Night-shift carer £11.25/hour: BELOW NLW £12.21 for 21+ workers. £0.96/hour underpayment × 40 hours × 52 weeks = ~£1,997/year arrears + HMRC penalty risk 200% (up to £20k cap).
    3. Sleep-in carer £75 for 9-hour shift + 30 min actual work: under Royal Mencap [2021] UKSC 8, only the 30 min actual work counts as NMW-eligible work. £75 / 0.5hr = £150/hour — comfortably above NLW £12.21. Compliant.
    4. Recommended remediation: lift apprentice + night-shift carer pay immediately; self-correct backpay within 14 days of any HMRC notice (50% penalty mitigation); document sleep-in policy referencing Mencap to evidence compliance.

    Outcome: Two of three workers materially underpaid; one fully compliant under Mencap. Self-correction within 14 days reduces penalty exposure significantly.

    How this connects to the rest of the framework

    Employee vs worker vs self-employed →

    Workers (not just employees) qualify for NMW — three-tier status test critical.

    Apprenticeship Levy →

    Apprentice rate applies only to recognised apprentices on approved frameworks.

    Statutory pay (SSP / SMP / SPP / SAP / ShPP / SPBP / SNCP) →

    Allocation of Tips Act 2023 (1 October 2024) — tips outside NMW + must flow 100% to workers.

    Frequently asked questions

    What happens if I miss the Self Assessment deadline?+
    The Self Assessment deadline is 31 January (online filing) for the previous tax year. Miss it and HMRC apply an automatic £100 penalty. Beyond that: £10 per day from 3 months late (capped at £900), 5% of tax due at 6 months late, and another 5% at 12 months late, under Schedule 55 of the Taxes Management Act 1970. If you have a genuine reason (serious illness, bereavement, technical issue with HMRC's systems) you can appeal with evidence; HMRC accepts reasonable excuse appeals in most genuine cases.
    Do I need an accountant or can I file Self Assessment myself?+
    Legally you can file Self Assessment yourself via gov.uk for free, most simple sole-trader returns (single income source, basic expenses) are realistic to self-file. An accountant adds real value when: your trading profit is above £40,000 (extraction-strategy decisions matter), you have multiple income streams (PAYE + self-employment + property + dividends), you've crossed the £90,000 VAT threshold, you're considering incorporation, or you have an HMRC enquiry. Expect to pay £400-£1,500/year for a typical sole-trader accountant; the cost is itself a deductible expense.
    How do payments on account work?+
    When your Self Assessment tax bill exceeds £1,000 for the first time, HMRC requires payments on account toward NEXT year's tax. Half the current bill is due 31 January (alongside the current bill); the other half is due 31 July. So your first January after crossing the threshold can hit with a double-bill: last year's balance + first payment on account. Adjust via Form SA303 if you expect next year's income to drop substantially. Payments on account don't apply if more than 80% of your tax is collected via PAYE.
    Do tips count towards NMW?+
    No — tips, gratuities and service charges have never counted towards NMW. The Allocation of Tips Act 2023 (effective 1 October 2024) requires 100% of tips to flow to workers under a written policy.
    Are sleep-in shifts subject to NMW?+
    Generally no — Royal Mencap v Tomlinson-Blake [2021] UKSC 8 held that sleep-in workers are only entitled to NMW for time actually worked, not for time asleep. Awake night shifts are different — full NMW applies.
    What is the penalty for paying below NMW?+
    200% of arrears (capped at £20,000 per worker), reducing to 100% if employer self-corrects within 14 days. Plus arrears payable to worker. Plus Naming + Shaming publication risk.
    Can I charge employees for uniforms?+
    Yes, but only out of the above-NMW slice of their pay. Deductions cannot reduce effective pay below NMW for the reference period.

    Free + regulated-body resources

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