Self Employed Yoga Teacher? Here is our tax advice guide just for you. Whether you are starting out or are about to fill out your tax return here are some tips for self employed yoga teachers to help you understand:
- How to register for self employment;
- What taxes you need to pay as a Self Employed Yoga Teacher and how much;
- Fully understand your HMRC self employment responsibilities.
What is Self Employment?
When you are a self employed yoga teacher all the money you that you collect is untaxed. It is unlike when you work for someone else and they pay you after deducting all your tax on your behalf.
When you are self employed you are responsible for letting HMRC know how much you have earned and how much tax you need to pay (much like an employer would do if you worked in a job).
You report your earnings on a Tax Return and it is really important to remember that you must complete this return regardless of how much you earn, even if you earn below the threshold for paying any tax.
Going self employed is by far the simplest and quickest way to get started as a Self Employed Yoga Teacher.
The Four Essentials of Self Employment:
- Visit the HMRC website and register as Self Employed;
- List out and keep all the receipts you earn as a Yoga Teacher and any expenses;
- Complete a Self Assessment Tax Return before 31 January each year summarising your business income and expenses;
- Pay any Tax and National Insurance due by 31 January each year (and payments on account by 31 January and 31 July each year).
Registering as Self Employed Online with HMRC
The process of registering as Self Employed on the HMRC website can take 10 days to complete. Upon which HMRC will post you a UTR number (Unique Taxpayers Reference). Keep this safe as you will need this code to file your Self Assessment Tax Return.
Your Responsibilities being Self Employed
Self Employed Individuals are responsible for reporting their income to HMRC under Self Assessment by submitting a personal Tax Return by 31 January each year detailing all of your income as a Yoga Teacher along with any other earnings (from a salaried job for example), income tax and national Insurance due, as well as paying any tax you owe.
Your tax return submitted by 31 January covers the previous tax year (a tax year runs from 6 April to 5 April). So for example, your tax return due by 31 January 2018 details your earnings between 6 April 2016 to 5 April 2017 from being a Yoga Teacher as well as any other income you have (such as employment income, rental income, bank interest or dividends).
Payments On Account
Watch out, you are also required to make a payment on account to HMRC by 31 July each year too which is normally 50% of your previous years income tax bill and class 4 national insurance bill, so make sure you budget for this additional payment too.
If you already Submit a Tax Return
It is also worth noting that if you already complete a Self Assessment Tax Return, for example because you collect rental income or have savings interest, that you need to complete a Form CWF1 to notify HMRC that you have a new form of income (in this case self employment) that you need to report to them on. Again, you can do this online here and you will need your Unique Taxpayers Reference.
Your trading income, somewhat deceivingly, actually means your trading profits (all your income less all your allowable business expenses). Generally speaking, business expenses are only tax allowable if they are ‘wholly, necessarily and exclusively’ incurred in the performance of your business. All expenses must be supported by a receipt, so make sure you keep hold of all your paper or emailed receipts. But it is really important to be aware of which expenses are allowable because they will reduce your tax bill and incorrect claims can result in penalties.
How to Work Out Your Earnings as a Self Employed Yoga Teacher
When you are self employed the tax you pay is based on the income you make as a Yoga Teacher. Confusingly, income actually means profit – all the money you make less all the costs you have incurred.
Self Employed Yoga Teacher Income
You income will be made up of all the money you get paid from people attending your classes (in cash and bank transfer), 1:2:1 lessons and any other money you get paid for teaching, like at a local gym.
Allowable Expenses for Self Employed Yoga Teachers
Allowable expenses reduce your profit and so reduce your tax bill, so it is really important to claim for all expenses possible. Here are some typical allowable expenses for self employed yoga teachers:
Depending on where you hold your sessions you may need to get some of your own equipment for your clients. So, things like yoga mats, towels and foam rollers are all tax allowable so keep hold of your receipts so you can present them to your accountant at tax time.
Computer & Printer
We live in a digital age so if you use a computer or iPad for marketing, timetabling, research or class planning then this equipment, as well as your printer, will attract tax relief either as an allowable expense or under the Annual Investment Allowance rules.
A website is almost like a marketing brochure now and gives you a chance to tell the world more about the type of Yoga you offer and give people a feel for your style and personality as well as give people an easy way to book onto your sessions online. If you are considering investing in a website then it is worth noting that the website, domain and hosting again are all allowable expenses.
The cost of a business phone is an allowable expense however if there is personal use then only a proportion of the contract costs can be claimed.
If you have a ‘uniform’ with your branding that you wear while you teach, then you should be able to claim for this cost. Normal clothing is not allowed and neither can you claim for the cost of washing powder.
Travel & Accommodation
Travelling is a common part of being a self employed yoga teacher, so if you have incurred the costs of taking a train or taxis for sessions then be sure to ask for your receipt as you should be able to claim this as an allowable expense.
If you have to use your car to travel to an client or to teach a class, then note down the mileage. This falls under the category of travel. So record you miles to and from your destination since you can claim 45p for the first 10,000 miles of driving and 25p thereafter.
Use of Home
If you choose to set up a yoga room at your home then there are rules that will allow you to claim an amount for the running costs of doing so as a portion of your household bills such as gas, water, electricity or rent. Make sure you have an idea of your household running costs to discuss with your accountant at tax return time as they will help you work out how much you can claim against your taxable income.
Alternatively, HMRC allows you to claim a flat rate of £4 per week for using your home for work purposes and you don’t need to substantiate this claim with receipts.
Note – If you choose to rent a room or premises you may not be able to claim for the cost of travel/mileage as this location may represent your place of work. Make sure you take professional advice before claiming for travel/mileage as incorrect claims can result in penalties.
Any marketing you do, flyers, paid ads or anyone you pay to help you with your marketing is also fully allowable so make sure you download receipts or ask your marketing assistant to send you an invoice before you pay them.
Business cards are a great way to connect with people and give potential clients your details. Again, these will be an allowable business expense.
Say you have a full day of teaching at an off site location and need to buy lunch you can expense reasonable meal costs such as lunch.
It is advisable that those that are self employed take out some form of insurance. Generally this insurance covers Public Liability Insurance, Products Liability Insurance and Malpractice. Again, these insurance costs will be an allowable expense.
You may opt to take courses to improve skills. These may be tax allowable so keep your receipts ready for when you need to submit your tax return. If you need to travel to your course or stay overnight as part of the training these costs are also tax deductible, as well as the cost of a basic meal for lunch/dinner. Take the time to collate your receipts or note down mileage so you can discuss your claim against your taxable income with your accountant.
Wages and Freelancers
If you need some assistance and support from other yoga teachers or freelancers, then the cost of these individuals will be tax allowable since they are an incidental cost of your project(s).
Accounting & Bookkeeping
Keeping accurate business records will help to avoid missing any entitlements or tax relief that you may be eligible for. Using a cloud based accounting software such as Xero, Quickbooks or Sage will make life easier, so if you do choose to sign up the cost of the monthly subscription is fully tax allowable. Then, if you choose to use an accountant to complete your self assessment tax return, again their fees will be an allowable expense. It is worth noting that keeping your business records in order will help keep your accounting fees at a minimum.
It is advisable to open a business bank account and keep your business and personal expenditure separate. The bank charges you pay on your business bank account is an allowable expense.
Top Tax Tip:
Even if you are currently not making any money as a self employed Yoga Teacher, you must still register with HMRC and complete a tax return. This may feel onerous, but completing a tax return means you can record all your expenses to create a tax loss. This can then be used against any money you make in future tax years and save you tax at this point.
How Much Tax Will You Pay
As you now know the amount of tax you pay is based on the profit you make from being an Yoga Teacher (all your income less all your allowable expenses).
However the amount of tax that you actually pay is based on your own circumstances and how much you earn in total during a tax year.
Income tax is calculated at different rates according to how much your profits are. So for 2017/2018 the rates are:
|Personal Allowance||0%||Up to £11,500||Up to £11,000|
|Basic rate||20%||£11,501 to £45,000||£11,001 to £43,000|
|Higher rate||40%||£45,001 to £150,000||£43,001 to £150,000|
|Additional rate||45%||over £150,000||over £150,000|
Example of Working Out Tax for a Self Employed Yoga Teacher
Carol is a Yoga Teacher but also has a part time job earning £15,000 per year, so has paid tax of £800 through payroll. She is getting ready to submit her tax return for the tax year 2016/2017 which is due by 31 January 2018. She has worked out that her profit as a Yoga Teacher was £22,000 therefore she will need to pay tax of £4,400.
What Other Tax Must a Self Employed Yoga Teacher Pay?
Self Employed Yoga Teachers may need to pay Class 2 and Class 4 National Insurance as well as tax. The amount of Class 4 National Insurance you pay is based on your Yoga Teacher profits. The current rates are:
|Class||Rates for tax year 2017/2018||Rates for tax year 2016/2017|
|Class 2||£2.85 a week on taxable profits above £6,025||£2.80 a week on taxable profits above £5,965|
|Class 4||9% on profits between £8,164 and £45,000 2% on profits over £45,000||9% on profits between £8,060 and £43,000 2% on profits over £43,000|
In our example above, Carol earned £22,000 therefore would need to pay Class 1 National Insurance of £145.60 and Class 2 National Insurance of £1,254.60.
Carol’s total tax bill is therefore:
- Income tax £4,400.00
- Class 1 National Insurance £145.60
- Class 2 National Insurance £1,254.60
- Total for 2016/2017 £5,800.20
- Payment on Account £2,827.30
- Total to pay by 31 January 2018 £8,627.50
Complete Your Tax Return
In our example Carol would need to complete the self employment section AND employment section of her Self Assessment Tax Return. She would need to disclose what she earned in her job which will be on her P60 provided to her by her employer.
When you are self employed it is important to budget for your tax and national insurance bill, one of the simplest ways is to set some money aside for HMRC as you get paid. If you are unsure how much tax you need to pay or of your tax status we definitely recommend you ask an accountant.