Many yoga teachers start out teaching classes to supplement the income from their day job. If you are a part-time yoga teacher, it is important to know your tax obligations.
I spoke to Fiona Connolly of McCarra Connolly Chartered Certified Accountants. I asked Fiona some questions that may be of interest to part-time yoga instructors that are not clear on their tax obligations. With over twelve years’ experience in practice in the areas of Accounting, Audit, Taxation and Payroll. Fiona is well placed to give advice on the subject.
I already pay tax in my day job; do I need to pay tax on my yoga classes too?
“Yes, all income that you earn is liable to Income Tax. Tax on income that you earn from employment is deducted from your wages by your employer at source. As a self-employed person, you pay income tax under the self-assessment system, once a year (October). “
Do I need to inform my day job / does the extra income affect their returns to Revenue about me?
“No, you don’t need to inform your current employer of your part-time business. You need to be aware that Self-assessment means that you are responsible for making your own assessment of tax due. The amount of salary that you earn in your employment may have an impact on the level of tax paid on your self employed earnings.”
Do I need to register as a sole trader / should I register as a sole trader?
“Once you have made the decision to become self-employed, the first thing you must do, is to register with Revenue for self-assessment. “
Is this also the case for someone that is working for someone else as their 9-5 and teaching Yoga a couple of times a week for themselves?
“Yes, a person that is working 9 – 5 is considered to be registered for Income Tax as a PAYE employee only and are not required to complete annual Form 11 tax returns. Once they commence teaching yoga, they are required to notify revenue that they have (albeit part-time) taken up self-employment and register for Income Tax as a self-employed person.”
How do I register as a sole trader?
“Registering online is the fastest, cheapest and most efficient way of registering for tax. Registering for Income Tax can be done through Revenue’s online portal MyAccount. Alternatively, you can use Revenue Online Service (ROS) to register for all relevant taxes such as Income Tax, VAT and PAYE.”
Can I claim VAT back on the equipment I buy (gym mats, exercise balls etc)?
“You can only claim back VAT if your business is VAT registered. “
You mean, I don’t have to register for VAT?
“Registering for VAT is mandatory if the income from the business is over the VAT threshold. If you register for VAT, you can claim VAT back on any business expenses. Remember though, that if you register for VAT, you must charge VAT on your fee income. Say class fee was envisaged to be €10. That would equate to €8.14 plus €1.87 Vat at 23% – total €10. The amount that you pay over to the revenue is €1.87 and the remaining net amount is what you have to cover your costs etc. You will also be required to complete bi-monthly VAT returns and ensure that you don’t fall behind on your liabilities to the Revenue. “
My first group of classes start this coming September, when do I need to register as a sole trader / for VAT?
“The thresholds for registering for VAT is based on your turnover over a twelve month period. In the case of a yoga instructor, you would be considered as carrying out a service – the principal threshold in the case of persons supplying a service only is €37,500. Once you reach this level, you are required to register for VAT. “
If my class subscriptions total €300 for my autumn run, how much tax will I pay on that?
“The amount of tax due depends on the level of trading profits made by your business in a period (usually over a twelve month accounting period). Profits equal Sales less allowable expenses.”
How can I pay the tax on money collected from teaching a Yoga class?
“You pay income tax on your profits through the self-assessment system. You will complete an Income Tax Return Form 11 which is a return of Income for a particular tax year. This return can be completed online via Revenue Online Services. “
“You also make the relevant payments through ROS. Your Income Tax Form 11 will become due by October in the year following your accounts year i.e. your accounts year runs from Jan 2018 – Dec 2018, you must file and pay your Form 11 by the 31st October 2019.”
I have collected €300 for the upcoming Yoga term, when can I pay my tax on it?
“You pay income tax on your profits through the self-assessment system. You will complete an Income Tax Return Form 11 which is a return of Income for a particular tax year. This return can be completed online via Revenue Online Services. You also make the relevant payments through ROS.”
“Your Income Tax Form 11 will become due by October in the year following your accounts year i.e. your accounts year runs from Jan 2018 – Dec 2018, you must file and pay your Form 11 by the 31st October 2019.”
When can I pay the tax on the €300 – e.g. I would like to pay it immediately so I can forget about it
“You can file your Income Tax Return any time after the end of your financial account’s year. There is no need to wait until the following October – some people love just to get it out of the way. One thing that you may need to consider is Preliminary Tax. “
What is Preliminary Tax?
“Preliminary tax is your estimate of the Income Tax, Pay Related Social Insurance (PRSI) and Universal Social Charge (USC) that you expect to pay for a tax year. You must pay this by 31 October of the tax year in question. “
“Preliminary tax is normally 100% of the tax due for the preceding year. For example, by 31 October 2019 you must pay file your 2018 self-assessment tax return and pay any Income Tax (IT) balance for 2018 and you must pay your preliminary tax (100% of current year) for 2019. “
What records do I need to keep for tax purposes?
“If you run a business, you must keep certain records for tax purposes. The records to be maintained must include the primary books of entry. which relate to all documentation for the purchases and sales of your services as a yoga instructor and all amounts received and paid out i.e. your bank statements, cheque books, sales invoices issued, and purchase invoices received. They must also be recorded in a manner that clearly shows the amounts involved and the matters to which each amount relates.”
Should I keep a copy of the receipts I issue to my students?
“Yes, it is important to keep a track of all sales invoices issued/class fees taken. “
Should I keep a copy of all my receipts for equipment?
“Yes, you need to retain a copy of all expense purchases including equipment. Capital expenditure on larger value items are not tax deductible but you can claim tax relief on them through capital allowances.”
“Keeping good records is very important to your business. It makes things easier and more efficient for preparing your year-end financial statements and tax returns. It will also help you monitor the progress of your business and increase the likelihood of business success. “
“It is recommended that you open a separate “business bank account” as opposed to using your personal one. This is mainly to aid recording keeping and helps when you and your accountant when you are preparing your end of year accounts.”
What qualifies as a business expense for Yoga Instructors?
“The expenses that you can claim for are those that are directly related to the running of your business such as: the purchase of goods for resale, wages, rent, motor running costs, insurance, accountancy fees, light and heat etc.”
“The key thing to remember is that in order to be a deductible expense it must be incurred ‘wholly and exclusively’ for the purposes of the trade.
“As a yoga instructor these may include costs such as:
- Any equipment and gear used exclusively by your clients
- Music and exercise videos, for example, if you play music while you work with clients during a yoga class – you can deduct the cost of your CDs, paid downloads, or streaming service. In addition, the cost of instructional videos you purchase and play to teach clients are tax-deductible
- Training that you undertake to enable you to instruct the classes
- Rent paid for the use of a premises”
There you have it. Tax for part time yoga teachers is not a complicated thing. Thanks to Fiona for her time and expertise. If you would like to get in touch with Fiona, please take a look at the McCarra Connolly website. McCarra Connolly provide outsourced financial control, accounting and taxation services to SME’s throughout Ireland.
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