Setting up on your own as a personal trainer or fitness instructor can be an exciting prospect as it allows you to choose your own hours, classes and clients. However, it also means that you have to take responsibility for your accounts.
While fitness professionals employed in the health and fitness industry, for example as a physical therapist or a sports centre manager, will have tax and National Insurance taken from their salaries at source, the self-employed, such as freelance personal trainers, must make the correct payments from their gross earnings.
Failing to follow the rules set out by Her Majesty’s Revenue & Customs (HMRC) can be an expensive mistake, which can land you with an unexpected bill or a fine.
Here are five tips that will help you set up as a self-employed personal trainer or fitness instructor.
1. PERSONAL TRAINERS SHOULD HAVE AN ACCOUNTANT
Trying to save money by not using an accountant will almost certainly be a false economy.
An accountant will prepare your annual accounts and advise you on when to file them and what you can put against tax, from equipment, such as kettlebells, mats or weights, to the mileage rate you can claim.
Most accountants will also offer tax planning for personal trainers to help you decide when to set up a limited company or register for VAT.
2. ALL FITNESS INSTRUCTORS SHOULD KEEP GOOD RECORDS
The last thing you want as a personal trainer is to get to the end of the tax year and find that you don’t have the information you need to file your accounts.
Always ask for receipts and keep a regularly updated record of earnings. Fitness instructors should consider using an online accounting system, so all your income and outgoings are in one place, with useful graphs showing monthly income, profit and loss, and earnings from different clients – which will also help you analyse and develop your personal training business.
3. PUT MONEY ASIDE FROM YOUR EARNINGS AS A FITNESS INSTRUCTOR
Because you are not taxed at source as a freelance fitness professional, you MUST put money aside as you go along, otherwise you could be faced with a tax bill you can’t pay.
Every year, there is a set amount you can earn before paying tax (for April 2014 to April 2015 it’s £10,000). Over this amount, your earnings will be taxed at varying rates. Consult your accountant or check the HMRC website http://www.hmrc.gov.uk/rates/it.htm for updates.
When you register as a self-employed fitness professional, you’ll be told which National Insurance payments to make – usually be Class 2 NI directly to HMRC and Class 4 NI through self assessment, when you complete your tax return. Again, there’s full information on the HMRC website.
4. SHOULD A FITNESS PROFESSIONAL REGISTER AS A SOLE TRADER OR SET UP A LIMITED COMPANY?
Many fitness instructors and personal trainers are sole traders. However, if you are earning over a certain amount, or if you want to present a more professional face, it could be worth asking your accountant about the benefits of setting up a limited company.
By running your business as a limited company, you will limit your liabilities should anything go wrong and potentially save on your tax bill by paying yourself a combination of a salary and dividends.
Your accountant will be able to advise you whether and when it’s worth switching from sole trader status to setting up your own fitness training company.
5. WHEN DO PERSONAL TRAINERS HAVE TO FILE ACCOUNTS?
If you are a self-employed fitness instructor registered as a sole trader, your tax year will run from 6 April of one year to 5 April of the next. You will need to file your accounts by the following 31 October if you’re filing a paper form or by 31 January if you’re filing online.
Three things to bear in mind:
- Even if you don’t think you have earned enough to pay tax, you still have to file your accounts so the tax office has all the necessary information.
- Filing late can attract a fine.
- Every accountant has a rush of clients filing their accounts in January, so it’s a good idea to beat the rush by preparing yours between April and November.
If you set up a limited fitness training company, your tax year will run from the month that you set it up to the same month the following year. Your accountant will be able to advise on when you need to prepare your accounts by and when you have to pay your tax and NI bills.
A word of advice – don’t ignore correspondence from HMRC if you are struggling with your tax bill, as they may be able to set up a payment schedule for you. Ignoring the problem may result in a fine and even a court summons.