Today we take a deep dive into the fitness industry.

The fitness industry has always been a popular market but during the pandemic online training boomed as many sought alternative ways to keeping fit. Today we will cover:

Structure – self-employed vs company set up
Tax treatments of your different types of sales
VAT registration
Tax deductible costs
How to avoid missing out on your state pension

Hello and welcome to Tax Able, today we are taking a deep dive into the fitness industry.
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The fitness industry has always been a popular market but during the pandemic online training boomed as many sought alternative ways to keeping fit.
Lets, quickly cover structure as there is a general misunderstanding of the different types. You can be employed, self-employed or own your own company.
1. Employed – you are paid through PAYE usually on a monthly payroll. Tax is deducted from your salary before you receive it and it is paid over to HMRC by your employer on your behalf. You do not own any shares or interest in the business.

2. Self-employed – this means you run your own business. You are the boss. You may have employees, equipment, etc. You have to compete a tax return based on your business profits each tax year 6 April – 5 April. Business profits are your income minus expenses. You have to submit the tax return by 31 January. You are subject to income tax on your profits.

3. Own your own company. A company is a separate legal identity. It is registered at Companies House and it is subject to s separate set of rules as you are one step removed from your business as it is its own entity. You are the shareholder i.e. you hold shares in the company. You are also likely to be a director as you are involved in the day to day running of your business. The company (not you) has to submit corporation tax returns to HMRC. The return deadlines are based on the company’s year end. For example, if it has a December year end then it will submit its returns in the following December. A company is subject to corporation tax on its business profits.
If you are self-employed and you want to run your business through a company you can do this by something called incorporation. Why would you want to incorporate? Well, the main benefit of a company is as it is a separate legal entity. If a claim is raised against the company or you run into hard times/default on a loan then the company is liable for the debts. If this happens when you are self-employed then you could lose your house or any other assets you own.
Now we understand how you can structure your business lets take a look at the main tax considerations you need to be aware of:
Different revenue streams
1. Online subscriptions
Virtual training is the new big thing. Of course it has been around for years but the changes in training during the pandemic meant that more people are open to an online training coach. Income is taxable and if supplying to UK customers it is VATable. Also if you supply to end consumers regardless of where they are based and by that I mean us everyday people rather than businesses it is also VATable. Be careful if you are supplying to overseas businesses. This may be treated differently for VAT so check in with your adviser about your world wide sales.
2. Books/e-books
Again all taxable. Physical books – 0%, ebooks – 0%. Now if you sell through Amazon you are required to know the VAT treatment so you cant rely on them.
3. Branded equipment, clothing
All taxable. If your items are made abroad and then imported into the UK you need to make sure you have the correct paperwork. You will have less of a headache with a good freight forwarding company but given all the issues at the ports because of Brexit, make sure you are up to date on what forms you need to complete to avoid delays.
4. Sponsorships / paid placements
Generally, all taxable. Make sure you ask your tax adviser review documentation before a new agreement is ventured into just to flag up any potential tax or VAT concerns.
Should you be VAT registered?
We have talked through your revenue streams and one item which is sometimes overlooked is VAT. If you make VATable sales of over £85k in a rolling 12 month period you need to be registered for VAT. That’s the technical answer so lets break it down:
1. VATable sales – all sales subject to 20%, 5% or 0% VAT.
2. Rolling 12 month period. Each month you need to add up all of your sales from your various income streams and see what the total is. Add each month to the following 11 to get your total. Once you go over £85k you need to register for VAT. This is why using an online accounting system is key to get live and accurate data.

This means you will charge VAT on your sales (this will likely make you more expensive to your customers so factor that in) but you can reclaim VAT on any and all costs you incur.
Tax deductible costs
1. App creation
Any costs associated with building and developing an online app are deductible for tax purposes. This means you will not pay tax on these costs. This counts even if you sub-contract out the work to a specialist.
2. Marketing expenditure
Marketing costs are tax deductible provided they relate to your business. This includes social media management, PR
3. Uniform
Fitness clothing and shoes. If you wear it only for your business then yes you can claim. If you use it personally then no. This includes
• Going to and from work
• Exercising in your own time
• For general leisure in your own time

Easy way to help with proving clothing is business expense is to brand it.

4. Laundry costs
If you claim uniform a small amount of laundry costs can be included.

5. Courses
Any courses which help with your business are tax deductible. If you aren’t sure, speak to your adviser.
6. Buying equipment
Inevitably you will need equipment to do you job so this is tax deductible. If you are a company you may be able to get extra tax relief through something called the “super deduction”. Conditions apply but listen to “Buy the whole kit and caboodle” as a starting point.

7. Gym at your house
This is something to be careful of if you own your own home. If you are renting and you create a gym then all the costs can go through as business. If you own your own home/at your parents home then you need to be careful. If you put through all the costs as businesses then you could impact a future sale of your home/your parents home. This is because when you sell a home any uplift in value (i.e. the amount it has increased since you bought it) is subject to capital gains tax. This gain i.e. the uplift can be relieved from tax if you have lived in the property as your main home. However, any business use is not relieved. That is the overall principal, basically you need to think about the impact on your home, especially if you are likely to sell in the next few years. Talk to your adviser and see how it will affect your situation.

8. Subsistence
If you are out for a business purpose and you buy coffee or lunch for yourself then this is a business cost. Make sure you keep all of your receipts, if you use an online accounting system you can take photographs of your receipts and they get allocated straight to your accounts.

9. Expenses for years you were not making any money
If you are just starting out/have just started out then make sure you submit your data even if you aren’t making any money. This is important as any loss you make i.e. when your expenses are higher than you income will reduce your future tax liabilities. We call this carrying your losses forward. For example, in year 1 you made a £20k loss as you bought lots of equipment/set up costs but didn’t get many clients. In year 2 you make £30k profit as things have picked up. As you have logged the £20k loss it gets carried forward and set against the £30k profit so you only pay tax in year 2 on the £10k balance.
Other items:
Do not miss out on your state pension
Self-employed – Make sure you voluntarily pay Class 2 National Insurance in your tax return. You may not pay it if your taxable profits are too low. This is especially relevant in your first few years of being a business.
If you miss years because of this then you could potentially miss out on your full state pension and other benefits. You can pay voluntary contributions to fill in any gaps.
To put this in perspective voluntary class 2 contributions are roughly £150 per tax year and the current state pension is £10k per year.
This is also relevant if you own your own company and you pay yourself what is known as the tax optimal salary. Just check that even though you may not pay National Insurance that you are paying enough to qualify for the benefits.
The points to take away today are:
1. Check what structure you have to make sure you are aware of what taxes you have to pay and when.
2. Think about where you see your business in 5 years. Should you incorporate?
3. Companies provide protection for their owners.
4. Make sure you are aware of the VAT status of your different types of sales
5. Should you be VAT registered?
6. Make sure you are including all of your businesses expenses
7. Check if you have any gaps in your national insurance record
8. If you have gaps, make voluntary contributions ASAP
Tune in to Wednesday’s episode with Dan Hyman the founder of Eat, Look, Feel. We discuss the launch of the business, how COVID has had impacted a new start up, lessons learned, future focus and advice for those starting out.
The audio is available on your usual podcast platform otherwise you can head over to the Tax Able with Tash YouTube channel.
Thank you for listening. Have a great week.

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