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UNITING THE WORLD OF FITNESS
Health Club Management

Health Club Management

features

Finance: Taxing matters

New tax laws will hit the UK fitness sector in early April, changing the way freelance PTs are legally classified for income tax and national insurance, as Abi Harris reports

By Abigail Harris | Published in Health Club Management 2021 issue 3
New tax laws will impact the way operators transact with fitness professionals / photo: shutterstock/Jacob Lund
New tax laws will impact the way operators transact with fitness professionals / photo: shutterstock/Jacob Lund

IR35 - four simple characters with a big impact for operators in the health and fitness industry. As the Chancellor left all mention of this impending tax change out of his March budget, this means private sector IR35 tax reforms officially hit our sector in April.

What is IR35?
IR35 is new tax legislation that means private sector employers will be responsible for assessing whether or not contractors need to pay income tax and national insurance contributions.

It will also compel operators to seek out ‘disguised employees’, or contractors with a permanent position at a company, who don’t pay the same income tax or national insurance contributions (NIC) as standard employees.

The purpose of IR35 is to collect the same amount of tax and National Insurance Contributions as would have been paid if an individual was employed directly.

It’s widely believed that IR35 changes could be disastrous for the self-employed, who are likely to be hit with additional costs, while companies – already grappling with the ongoing fallout from COVID-19 – will need to assess the likely impact of the new legislation on their businesses and move to accommodate the change.

What it means for our sector
IR35 will apply where personal trainers or instructors provide services to an organisation through an intermediary company, such as Joe Bloggs PT Services Ltd, or are supplied via an employment agency/business. The question to ask is ”if it wasn’t for that company in the middle, would the individual be regarded as an employee/worker for tax and NIC purposes?”

Health club and leisure centre operators engaging ‘off-payroll’ PTs and instructors via an intermediary will be responsible for determining their employment status and paying Income Tax and NICs for those deemed employees.

Aaron McCulloch is MD of Your Personal Training (YPT), which supports PTs and gym operators to deliver personal training services. He says: “Many PTs work in clubs as ‘off-payroll’ gym or class instructors via their own limited company in lieu of paying floor rent to operate their business; it’s been standard practice in our sector for many years.

“They’re often required to carry out inductions, group exercise classes or even cleaning, and would typically have to ask for time off and work their PT business around a shift rota set by the club.

“If a PT or instructor is obliged to deliver a set number of regular working hours and are told when, where and how they must do this, it’s likely HMRC would deem them an employee.”

Law firm, Irwin Mitchell, has been supporting companies dealing with IR35 across a number of sectors and senior associate, Padma Tadi, says: “The financial impact can be significant; amounting to thousands of pounds in additional income tax and NICs for every contractor HMRC would deem to be an employee.

“Operators will be responsible for deducting and passing on these charges, as well managing the increased costs and responsibilities attached to employment rights to which the individual may be entitled.

“The legislation applies to all invoices and payments made after 6 April 2021,” she says, “even if the work is carried out before that date and when passed on to PTs or instructors, this could reduce their net income by up to 25 per cent.”

The good news is these changes only apply to freelancers providing services via an intermediary company and they won’t apply to small organisations which don’t meet at least two of the following criteria:

● Annual turnover of more than £10.2 million

● Balance sheet total of more than £5.1 million

● More than 50 (F/T equivalent) employees

However, Tadi advises: “Beware when looking at size. If you’re part of a corporate group, the overall group turnover must be considered, or you may still fall within the scope.”

“Preparation is key, because assessing each team member and introducing and actioning appropriate policies and procedures can be extremely time consuming,” warns McCulloch.

"The financial impact can be significant, amounting to thousands of pounds in additional income tax and NICs for every contractor HMRC would deem to be an employee" – Padma Tadi, Irwin Mitchell

"If a PT or instructor is obliged to deliver a set number of regular working hours and are told when, where and how they must do this, it’s likely HMRC would deem them an employee" – Aaron McCulloch, Your Personal Training

8 steps to compliance
Aaron McCulloch, Your Personal Training

1. Establish whether you fall within the definition of ‘small’. If so, you won’t ever need to make changes, provided you remain small.

2. Identify freelancers who operate via an intermediary and provide a status determination for each. Consider how often they work for you, whether they provide their own kit and if they work for other gyms.

3. Decide who in the team will be responsible for determining the status of freelancers. If they need training to understand how to make a proper assessment, HMRC has an online tool (known as CEST) to assist, but it has been subject to criticism for giving some inaccurate outcomes, so we advise also seeking professional advice.

4. Freelance PTs and instructors may challenge the status you allocate. Decide how you’ll deal with those appeals and how you’ll comply with the time limits (you have 45 days to respond to any appeal with your findings).

5. Will tax and NICs which are due be an additional cost for you, or can you renegotiate so this is factored into the PTs’ rates?

6. Review how the payment processes will work. The PTs’ invoices will need to be split between fee and VAT, with PAYE and NIC calculated on the fee and with a net payment made to the PTs and PAYE/NIC to HMRC.

7. Establish whether you need to set up a separate PAYE scheme to handle payments – they must be processed under the real-time information (RTI) arrangements.

8. Advise instructors you’re reviewing your processes. You may want to ask them to become employees if they are critical to your operation.

Each team member could need to be assessed / photo: shutterstock/Jacob Lund
Each team member could need to be assessed / photo: shutterstock/Jacob Lund
https://www.leisureopportunities.co.uk/images/2021/116509_817885.jpg
New tax law, IR35, is changing the way employers treat tax and national insurance payments for freelance staff such as PTs
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features

Finance: Taxing matters

New tax laws will hit the UK fitness sector in early April, changing the way freelance PTs are legally classified for income tax and national insurance, as Abi Harris reports

By Abigail Harris | Published in Health Club Management 2021 issue 3
New tax laws will impact the way operators transact with fitness professionals / photo: shutterstock/Jacob Lund
New tax laws will impact the way operators transact with fitness professionals / photo: shutterstock/Jacob Lund

IR35 - four simple characters with a big impact for operators in the health and fitness industry. As the Chancellor left all mention of this impending tax change out of his March budget, this means private sector IR35 tax reforms officially hit our sector in April.

What is IR35?
IR35 is new tax legislation that means private sector employers will be responsible for assessing whether or not contractors need to pay income tax and national insurance contributions.

It will also compel operators to seek out ‘disguised employees’, or contractors with a permanent position at a company, who don’t pay the same income tax or national insurance contributions (NIC) as standard employees.

The purpose of IR35 is to collect the same amount of tax and National Insurance Contributions as would have been paid if an individual was employed directly.

It’s widely believed that IR35 changes could be disastrous for the self-employed, who are likely to be hit with additional costs, while companies – already grappling with the ongoing fallout from COVID-19 – will need to assess the likely impact of the new legislation on their businesses and move to accommodate the change.

What it means for our sector
IR35 will apply where personal trainers or instructors provide services to an organisation through an intermediary company, such as Joe Bloggs PT Services Ltd, or are supplied via an employment agency/business. The question to ask is ”if it wasn’t for that company in the middle, would the individual be regarded as an employee/worker for tax and NIC purposes?”

Health club and leisure centre operators engaging ‘off-payroll’ PTs and instructors via an intermediary will be responsible for determining their employment status and paying Income Tax and NICs for those deemed employees.

Aaron McCulloch is MD of Your Personal Training (YPT), which supports PTs and gym operators to deliver personal training services. He says: “Many PTs work in clubs as ‘off-payroll’ gym or class instructors via their own limited company in lieu of paying floor rent to operate their business; it’s been standard practice in our sector for many years.

“They’re often required to carry out inductions, group exercise classes or even cleaning, and would typically have to ask for time off and work their PT business around a shift rota set by the club.

“If a PT or instructor is obliged to deliver a set number of regular working hours and are told when, where and how they must do this, it’s likely HMRC would deem them an employee.”

Law firm, Irwin Mitchell, has been supporting companies dealing with IR35 across a number of sectors and senior associate, Padma Tadi, says: “The financial impact can be significant; amounting to thousands of pounds in additional income tax and NICs for every contractor HMRC would deem to be an employee.

“Operators will be responsible for deducting and passing on these charges, as well managing the increased costs and responsibilities attached to employment rights to which the individual may be entitled.

“The legislation applies to all invoices and payments made after 6 April 2021,” she says, “even if the work is carried out before that date and when passed on to PTs or instructors, this could reduce their net income by up to 25 per cent.”

The good news is these changes only apply to freelancers providing services via an intermediary company and they won’t apply to small organisations which don’t meet at least two of the following criteria:

● Annual turnover of more than £10.2 million

● Balance sheet total of more than £5.1 million

● More than 50 (F/T equivalent) employees

However, Tadi advises: “Beware when looking at size. If you’re part of a corporate group, the overall group turnover must be considered, or you may still fall within the scope.”

“Preparation is key, because assessing each team member and introducing and actioning appropriate policies and procedures can be extremely time consuming,” warns McCulloch.

"The financial impact can be significant, amounting to thousands of pounds in additional income tax and NICs for every contractor HMRC would deem to be an employee" – Padma Tadi, Irwin Mitchell

"If a PT or instructor is obliged to deliver a set number of regular working hours and are told when, where and how they must do this, it’s likely HMRC would deem them an employee" – Aaron McCulloch, Your Personal Training

8 steps to compliance
Aaron McCulloch, Your Personal Training

1. Establish whether you fall within the definition of ‘small’. If so, you won’t ever need to make changes, provided you remain small.

2. Identify freelancers who operate via an intermediary and provide a status determination for each. Consider how often they work for you, whether they provide their own kit and if they work for other gyms.

3. Decide who in the team will be responsible for determining the status of freelancers. If they need training to understand how to make a proper assessment, HMRC has an online tool (known as CEST) to assist, but it has been subject to criticism for giving some inaccurate outcomes, so we advise also seeking professional advice.

4. Freelance PTs and instructors may challenge the status you allocate. Decide how you’ll deal with those appeals and how you’ll comply with the time limits (you have 45 days to respond to any appeal with your findings).

5. Will tax and NICs which are due be an additional cost for you, or can you renegotiate so this is factored into the PTs’ rates?

6. Review how the payment processes will work. The PTs’ invoices will need to be split between fee and VAT, with PAYE and NIC calculated on the fee and with a net payment made to the PTs and PAYE/NIC to HMRC.

7. Establish whether you need to set up a separate PAYE scheme to handle payments – they must be processed under the real-time information (RTI) arrangements.

8. Advise instructors you’re reviewing your processes. You may want to ask them to become employees if they are critical to your operation.

Each team member could need to be assessed / photo: shutterstock/Jacob Lund
Each team member could need to be assessed / photo: shutterstock/Jacob Lund
https://www.leisureopportunities.co.uk/images/2021/116509_817885.jpg
New tax law, IR35, is changing the way employers treat tax and national insurance payments for freelance staff such as PTs
Latest News
HCM understands that Fitness International, which operates more than 700 health clubs under the LA ...
Latest News
A court has given Virgin Active the green light to erase the rent arrears it ...
Latest News
The Swimming Teachers' Association (STA) has partnered with a psychologist to provide new mindfulness and ...
Latest News
A report commissioned by Parkrun has estimated that allowing mass-participation outdoor events carries an "exceptionally ...
Latest News
Jan Spaticchia, founder and chair of énergie Fitness has died aged 51 following a short ...
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A new pioneering approach looks to help cancer patients prepare for and respond to treatment ...
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Peloton is recalling all of its Tread and Tread+ machines in the US, after striking ...
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Opinion
promotion
The UK’s first dedicated leisure development framework has completed its first four-year term with £144m committed investment in public leisure projects.
Opinion: UK’s first leisure framework celebrates £144m investment in public leisure
Featured supplier news
Featured supplier news: New consumer expectations demand an exceptional customer experience
fibodo believes that providers who meet consumers needs of service, flexibility, richness of content and accessibility will thrive as we build new and different models of working in leisure, health and fitness and across all sports and activities.
Featured supplier news
Featured supplier news: Engaging smart technology helps gyms and fitness professionals get their leading role back
Safety, quality of service, and member engagement are key in order to offer a unique fitness experience that will boost the re-start.
Company profiles
Company profile: Pulse Fitness
With an award-winning portfolio of over 450 pieces of cutting-edge, premium fitness equipment, Pulse Fitness ...
Company profiles
Company profile: TRIB3 International Ltd
First established in Sheffield in January 2016 TRIB3 is a bootcamp boutique studio designed to ...
Supplier Showcases
Supplier showcase - Funxtion
Catalogue Gallery
Click on a catalogue to view it online
Directory
Whole body cryotherapy
Art of Cryo: Whole body cryotherapy
Flooring
Total Vibration Solutions / TVS Sports Surfaces: Flooring
Architects/designers
Zynk Design Consultants: Architects/designers
Independent service & maintenance
Servicesport UK Limited: Independent service & maintenance
Exercise equipment
Pendex Fisio S.L.: Exercise equipment
Uniforms
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Wearable technology solutions
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Lockers/interior design
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Fitness equipment
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Property & Tenders
Pendine Sands, Carmarthenshire
Carmarthenshire County Council
Property & Tenders
Diary dates
07-09 Jun 2021
Virtual summit,
Diary dates
12 Jun 2021
Worldwide, Various,
Diary dates
13-14 Jun 2021
Online,
Diary dates
01-04 Jul 2021
Expo Centre & Riviera di Rimini, Italy
Diary dates
18-19 Sep 2021
Locations worldwide,
Diary dates
21-24 Sep 2021
Messe Stuttgart, Germany
Diary dates
28-29 Sep 2021
ExCeL London, London, United Kingdom
Diary dates
04-07 Nov 2021
Exhibition Centre , Cologne, Germany
Diary dates
01-07 Dec 2022
tbc, Dunedin, New Zealand
Diary dates
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