Everyday Accountants are a pioneer of tax and accountancy services for the fitness industry in the UK. In this blog, we have summarised some of our top tips for self-employed personal trainers to manage tax.
Our top tips, in no particular order, would help any personal trainer avoid some key pitfalls. Managing tax is something not many personal trainers enjoy, but it is an opportunity to improve your overall finances. Better tax management could potentially mean more money in your pocket such as avoiding falling on the wrong side of the law such as penalties for late filing of tax returns and late payments of tax liabilities owed.
Top Tip 1: If you’re not sure where to begin, ask for help.
If you are new to personal training and not sure where to start on how to manage your taxes, our first top tip would be to ask for help. One of the first places to ask for help is with your training provider where hundreds if not thousands of individuals qualify as a personal trainer each year who are in the same situation as you. Your training provider may work in collaboration with an accountant, such as Everyday Accountants, who specialise in the fitness industry and supporting newly qualified personal trainers. We are on hand to help.
Top Tip 2: Learn about accountancy and tax or pay a professional who knows!
You don’t expect gym goers to get as fit, as strong, or a better technique without your support, do you? On the same grounds, you can’t expect to manage your taxes better without an accountant. Quite often, accountant’s fees can be less than the tax they can save you by managing your tax affairs well. Furthermore, the money you pay your accountant to calculate your self-employed income can be a business expense and reduce the tax you end up paying. However, if you are thinking that your personal training might be a side business or effectively too small to save enough tax to warrant paying a professional, the other option is managing it yourself. If you decide to do it yourself, just as you spent the time learning how to become a personal trainer, you must invest time to understand how to manage your self-employed business. At Everyday Accountants, we have invaluable information available to you with blogs, guides, downloadable documents to get you started.
Top Tip 3: Save money as you earn it so that you can afford to pay the tax man; including payments on account.
If you’ve been employed before, you will be comfortable with getting paid your salary after tax and national insurance has been deducted. However, when you run a self-employed business, you receive money off your clients before tax and it is now your responsibility for handing the tax and national insurance over to the tax man. Yes, you are now an unpaid tax collector! How much do you need to save? Well, it depends on many factors such as how much you expect to earn each year as the more money you earn the more you need to save. Check out HMRC calculator on how to budget for your taxes.
As HMRC’s calculator states, it doesn’t take into consideration payments on account. Check out FAQs on our website regarding payments on account. But assuming it applies, you must also make an additional payment to HMRC of 50% of the tax liability by 31 January following the tax year in question. That’s right, if your tax liability is £5,000, you must pay by 31 January 2021 £7,500 in tax. There will then be an additional 50% to pay by 31 July following the January deadline as well. These extra payments are a payments-on-account towards the following tax year’s liability. By the time you go to pay the second year’s liability, you will pay year 2’s tax liability less the payments-on-account that you made already. But then you must also make payments-on-account for the following year 3. Therefore, tax payments to HMRC in year one from starting to trade is a significant year that catches many people out.
Top Tip 4: File your taxes as early as possible
Many self-employed individuals wait until the month of the online filing deadline (31 January following the tax year) until they file their taxes, and some even on the last day. The filing deadline is also the payment deadline and therefore if you wait until January to file, you will have less than a month to find the money to pay what you owe the tax man. Once a tax year ends on 5 April, rather than waiting until 31 January, you can file your return potentially as early as 6 April in the new tax year. Filing your taxes as early as possible allows you to plan your finances better and ensure you will have enough money to pay any tax owed by 31 January.
Top Tip 5: Include all your business expenses
To see what business expenses you can claim for, read our blog titled ‘Your Guide to Tax as a Personal Trainer’ for a reasonably thorough summary. As part of including all business expenses, we would recommend you ensure you make transactions allowable for your business. For instance, you must wear gym clothing to work. If you have your own business branded clothing, the costs for the clothes and the labelling would become a deductible expense. In addition, ensure you include flat rate allowances HMRC provide such as ‘Use of Home as Office’ or ‘Business mileage on a personal vehicle’. Check HMRC’s website for more information on these.
We could carry on even further, but we are sure that there is enough information here to support any self-employed personal trainer to make improvements to manage tax. Feel free to read the different posts on our blog for more information on some of the tips discussed above and other interesting topics you may want to know.
Lastly, if you would rather outsource to manage your tax over to Everyday Accountants, please get in touch or sign up through our website.