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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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Diary dates
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07-10 Apr 2022
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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
People should concentrate on exercise and staying fit – rather than dieting and weight loss ...
Latest News
Sibec Europe, scheduled to take place in Cologne, Germany, from 2 to 5 November 2021, ...
Latest News
Swim England has warned that 2,000 swimming pools could be lost forever unless the government ...
Latest News
Sports Minister, Nigel Huddleston, has joined gym-goers this morning to kick-off the annual National Fitness ...
Latest News
A new high-end workspace, designed for the use of personal trainers, coaches and other health ...
Latest News
VAT reform, adjustments in business rates and a fitness-led high street regeneration push could see ...
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Peloton has completed the merging of its commercial operations with Precor, the equipment brand it ...
Latest News
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Featured supplier news
Featured supplier news: Technogym awarded “Supplier of the year” at ukactive awards 2021
The best in class of the physical activity sector have been revealed at the ukactive Awards 2021.
Featured supplier news
Featured supplier news: Active IQ Skills Hub helps fitness professionals boost skills in post-Covid market
Suffice to say that the pandemic has completely changed the way fitness professionals work and the way consumers work out – and therein lies opportunity.
Featured operator news
Featured operator news: Everyone Active bolsters Everyone on Demand and enters second year with five new partnerships
Everyone Active has signed a number of new deals which will see the operator strengthen its digital product offering, Everyone on Demand.
Featured operator news
Featured operator news: Being active helps Parkwood Leisure customers save the NHS £16m
Parkwood Leisure, one of the UK’s leading public leisure facilities operators, helped prevent more than 7,000 cases of stroke, dementia, depression and type 2 diabetes in 2019, saving the NHS £16 million, a new social value report has shown.
Company profiles
Company profile: Octane Fitness UK
A global innovator of innovation and variety in fitness equipment, Octane Fitness, a True Fitness ...
Company profiles
Company profile: Pulse Fitness
With an award-winning portfolio of over 450 pieces of cutting-edge, premium fitness equipment, Pulse Fitness ...
Supplier Showcases
Supplier showcase - Gympass
Catalogue Gallery
Click on a catalogue to view it online
Directory
Skincare
Sothys: Skincare
Management software
Premier Software Solutions: Management software
Red Light Therapy
 Red Light Rising: Red Light Therapy
Salt therapy products
Himalayan Source: Salt therapy products
Uniforms
Service Sport: Uniforms
Wearable technology solutions
MyZone: Wearable technology solutions
Hydrotherapy / spa fragrances
Kemitron GmbH: Hydrotherapy / spa fragrances
Independent service & maintenance
Servicesport UK Limited: Independent service & maintenance
Architects/designers
Zynk Design Consultants: Architects/designers
Exercise equipment
Matrix Fitness: Exercise equipment
Property & Tenders
Welwyn Garden City
Welwyn Hatfield Borough Council
Property & Tenders
Newport, Shropshire
Lilleshall Sports Academy
Property & Tenders
Diary dates
13-14 Oct 2021
Online,
Diary dates
01-03 Feb 2022
Coventry Building Society Arena, Coventry, United Kingdom
Diary dates
07-10 Apr 2022
Exhibition Centre , Cologne, Germany
Diary dates
15-16 Jun 2022
ExCeL London, London, United Kingdom
Diary dates
01-07 Dec 2022
tbc, Dunedin, New Zealand
Diary dates
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