18 Dec Calling ALL Sports Coaches – Would You Be Ready for a Tax Inspection?
Having just returned from a visit to a sports coach who has just received a letter informing her that she has been chosen for a HMRC tax inspection, we thought it would be a good time to remind coaches to review their business record keeping before they get a call from HMRC and to outline the top five issues coaches have as a result of an investigation.
Our London based coach – we’ll call her Emma – has four of the five issues listed, which will be difficult, if not impossible, to rectify in the limited time now available. So the message is don’t put off reviewing your business – you only get 30 days notice of an inspection so sorting any issues out now could pay dividends in the future.
Issue Number 1 – Travel between home and club
We regularly come across coaches who are claiming business mileage between their home and usual place(s) of work. Unfortunately, this is NOT allowable business mileage since it is travel to and from the ‘principle place of work’. HMRC will disallow this mileage and will potentially go back as far as six years in doing so, which can result in a significant bill.
Issue Number 2 – Inadequate Record Keeping
All small businesses are required to keep ‘accurate, complete and readable’ bookkeeping records and can be charged a penalty of up to £3,000 for each year that records do not meet this standard. Coaches must keep details of everyone who pays them and when – a simple income spreadsheet will suffice for this – and the details in the spreadsheet must match records kept in the diary and the details in the self-assessment. Ensure all receipts are kept in a readable form – shoe box storage doesn’t usually go down well with a tax inspector!
Issue Number 3 – Claiming Business Expenses
A business can only claim expenses that are wholly used in the business. We regularly come across coaches claiming for items that would not pass scrutiny, for example, Satellite TV (justified as research), sports clothing, and entertaining clients/customers. Know what you can and can’t claim for and don’t listen to other coaches for this advice!
Issue Number 4 – Paying Other Self-Employed Coaches
Many coaches pay other coaches as part of their programme to deliver sessions. If these other coaches are registered as self-employed, the coach must ensure that these workers pass the self-employment guidelines, i.e. they would not be declared as employees by the tax authorities if an inspection took place, with a resulting tax bill.
We have had a number of cases where a head coach has been informed by HMRC that their workers are not self-employed but are in fact employees, because of the way in which the coach works with them. The easiest way for a coach to qualify his/her workers as self-employed is to ensure they find a substitute when they cannot make a session – further details are available on our website. The coach will need to complete the Employment Status Indicator software check on the GOV website and issue a robust contract with the worker in order to prove they meet the requirements for self-employment.
Issue Number 5 – Declaring Income
It is common to come across coaches who do not declare all of their income to the tax authorities, instead keeping some as ‘cash in hand’. HMRC will take legal action if they are able to prove that a coach has not declared income and this can result in a criminal conviction. Coaches should be aware that HMRC will check with the venues that coaches work at to find out what lessons have been delivered and what payments have been made – if this information does not match the coach’s records, this will be grounds for further investigation and potential prosecution.
So there you have it – five areas to review and correct before any potential scrutiny by the tax authorites. Further advice is available on our website at www.gbsport.org.uk.