smallbusiness.co.uk: Helping your business think big

You do not say whether your work as a personal trainer is through a limited company. If you own more than 5% of the shares in the company, you might need to consider whether you might be in an “IR35” situation.

For example, many IT consultants are forced to form limited companies to qualify for contracts from large businesses. Basically, IR35 was introduced by the government to prevent individuals from forming a company as a vehicle to receive income as a means of avoiding Income Tax or National Insurance Contributions. It applies where a single worker’s (“the contractor”) services are provided to a client through a limited company (in which the worker has more than a 5% share) where in other circumstances the worker would be an employee of the client.

The Inland Revenue expects the income of the company (called “Service Companies”) to be treated as income of an individual.

There are a number of relevant Tax Bulletins and Booklets available from HM Revenue and Customs at www.hmrc.gov.uk/ir35/faq.htm

But it is more likely that the issue for you is whether the Inland Revenue regard you as an employee of the “friend” rather than being self-employed. If you are self-employed you are entitled to deduct expenses “wholly and necessarily incurred” in the business.

But as an employee you will not be allowed to deduct expenses and your earnings will be subject to PAYE (Income Tax) and National Insurance contributions.  There is a very good guide entitled IR56 – Employed or self-employed? A guide to employment status for tax and National Insurance contributions on the HMRC website at:
www.hmrc.gov.uk/pdfs/ir56.pdf

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