Fitness Classes - hobby or business?

[Fitness Sal]

I am recently retired, have various pensions all taxed at source. I teach fitness classes to older ladies and until recently just covered my costs (hall rent, PPL license etc) having set my class price low to do this. However my classes are growing and I now find myself making a small profit - around £300 last financial year. Should this be declared ( I suspect the answer will be "yes") and how if so will HMRC want very detailed records of attendants at my classes? Thanks for any advice!

[mullet]

If you are running your classes for profit, then yes you should register as self-employed and declare the income. There is a grey line between a hobby and a business, but on the basis of the limited information presented I think that you have crossed it. You may even have been over it from the start ... and you might have accrued losses which you can now use to set against your profits.

In terms of records, in my opinion an attendance register is the bare minimum. It could also double as a cash received book. You also need to keep receipts and invoices etc to support your expenditure. Maintaining records for this venture should not be onerous, and if you have basic organisational and numeracy skills you should be able to manage without an accountant.

[section 44]

think that you have crossed it. You may even have been over it from the start

But:

until recently just covered my costs (hall rent, PPL license etc) having set my class price low to do this

Those words "having set my class price low to [just cover my costs]" does not sound like a profit motive and rather the recent profit may be a flash in the pan that was unexpected.

Given where you now are (with an unexpected £300 profit) what do you intend to do going forward? Keep making a profit or reduce your prices so that you resume just covering your costs?

[Incredulum]

Those words "having set my class price low to [just cover my costs]" does not sound like a profit motive and rather the recent profit may be a flash in the pan that was unexpected.

But... arguably many businesses make a loss in the opening years whilst building up a customer base.

[section 44]

Which is why this is important:

Given where you now are (with an unexpected £300 profit) what do you intend to do going forward? Keep making a profit or reduce your prices so that you resume just covering your costs?

[Incredulum]

Is it? I can see four scenarios, none of which, i think, turns on your important question:

1. Started making losses, business built up in size so now makes profits. Losses in earlier years available to c/fwd OR to offset for sideways relief.

2. Trading otherwise than with a view to a profit. Losses therefore only available to offset profits of the same trade, no sideways relief.

3. It's not a trade at all. £300 is "miscellaneous" income and no relief for earlier years.

4. It's not profit at all, so there's nothing to tax.

'4' I don't see applying; they are not gratuitous receipts. I don't think I like '3'. '1' has obviously not been followed - i.e. sideways relief has never been claimed. '2' therefore covers both '1' and '2', so probably covers the current situation.

More about having a trade without a profit motive here:
http://www.hmrc.gov.uk/manuals/bimmanual/bim20215.htm


There's the technical answer. Practically, OP, for £300, by the time you've deducted a gratuitous £3 per week for home office costs, and probably driven a few miles at 40p per mile there's no profit to tax, so best just ignored. Of course, if it's getting bigger then no you shouldn't ignore it.

[Fitness Sal]

Thanks for the replies. Is there anywhere I can find a list of allowable expenses; some, like mileage, are obvious, but I hadn't thought of the "home office" aspect..new computer???

[Incredulum]

Any cost that is "wholly and exclusively" incurred for the purposes of the trade. HMRC accept that a percentage of a cost may be wholly and exclusively... so if 50% of your computer useage is for the trade, then a deduction for 50% of the cost.