As a UK sole trader running a fitness business, managing your finances efficiently is essential for the success and profitability of your business. As a sole trader, you know that you have to pay taxes on your income. But did you know that there are a number of ways to reduce your tax bill? In this article, we will discuss some tips that can help you save money on taxes.
Claim all of your allowable expenses
Familiarise yourself with the tax deductions available to your business and ensure you claim all eligible expenses. Deducting eligible expenses can significantly reduce your taxable income and lower your overall tax liability. Common deductions for sports and fitness businesses include equipment, advertising costs, professional fees, travel expenses, and rent.
Here are some specific examples of how fitness professionals can reduce their tax bills:
A personal trainer who is a member of the Register of Exercise Professionals can claim the cost of the professional fee as an expense.
A group fitness instructor who rents a studio space can claim the rent as an expense.
A sports massage therapist who takes continuing education courses can claim the cost of the courses as an expense.
Offset losses against profits.
Although it is not what any business owner wants it is not unusual for a business to make a loss some years. This is often the case in the first few years, for example, a new sports coaching business may have the initial costs of equipment and marketing before any income arrives.
There is good news with this though, if you make a loss in one year, you can offset it against other income that year, previous years' income or profit from the same trade in future years. You will want to utilise the loss in the most efficient way which can help to reduce your tax bill in the long run.
Take advantage of the allowances available
As a UK sole trader, there are several allowances and reliefs available to help you reduce your tax liability. Here are some key allowances you should be aware of:
Personal allowance - is a tax-free amount of income that is available to all taxpayers. For the 2022/23 tax year, the personal allowance is £12,570. If you earn less than this, you will not have to pay any income tax.
Trading allowance - the trading allowance is a tax-free allowance of up to £1,000 per year for individuals with trading income from self-employment.
Capital allowances - allow you to deduct the cost of certain assets from your taxable profits over time. They apply to assets used in your business, including equipment, machinery, and business vehicles. There are different types of capital allowances available. It's important to understand which assets qualify and the applicable rates for claiming capital allowances.
Plan your spending
In the UK you more you earn in principle the more tax you pay. This is due to the income tax rates and bands.
23/24 income tax rates and bands
Band | Taxable income | Tax rate |
Personal Allowance | Up to £12,570 | 0% |
Basic rate | £12,571 to £50,270 | 20% |
Higher rate | £50,271 to £125,140 | 40% |
Additional rate | over £125,140 | 45% |
With this in mind, you should consider your tax rate and band with your spending.
Scenario 1
A sports physio has had a very strong year and they predict their profit for the tax year to be over £130k putting them in the additional rate tax band. They believe next year their profit will not be as strong as the rent on their clinic is going up so will likely be closer to £100k. With this in mind if they were considering spending some money on the business eg. a new physio couch and laptop then those expenses would be better off falling this year and bringing their tax rate down rather than next year where it will already be lower.
Scenario 2
A football coach has had a very poor year and they predict their profit will only be £10k. The following tax year they believe it will be a lot stronger, closer to £30k as the world cup is happening and this always spikes interest in their business. With this is mind if they were thinking of spending on some new sports equipment this would be better off left to the following tax year as this year they are already below their personal allowance with a tax rate of 0%.
Submit and pay your self-assessment tax return on time
Missing the deadline for submitting or paying your self-assessment tax return is a sure way to increase your tax bill. You get penalties for submitting your return late and paying your tax bill late, both of which increase over time plus interest added on for late payments.
On top of you can also receive penalties if you make an error on your tax return without reasonable care. This is more likely to happen if you rush your tax return because you left it late.
As you can imagine if you are late with your tax return and payment the amount added to your tax liability can easily increase significantly. You can file your tax return from the start of the tax year, April 6th with the deadline being over 9 months later for online submissions on January 31st.
Submitting your self-assessment tax return on time is essential to avoid penalties, ensure accurate reporting, claim all eligible deductions, plan your finances effectively, and experience peace of mind. It is advisable to be proactive and stay organised.
Summary of how to reduce your tax bill
Saving money on your tax bill is a vital aspect of financial management for fitness and sport business owners. By implementing these tips and staying informed about tax rules and regulations, you can maximize your savings and allocate more resources toward growing your business.