Tennis Coaching: Tax Aspects of Self Employment

As a tennis coach, you are caught by the Income Tax provisions that apply to all self employed persons. This article covers:

1. Matters to attend to at the outset.
2. How taxable earnings are arrived at.
3. Compliance aspects.
4. Tax pitfalls.

Matters to attend to at outset:

Registration: All self employed persons must be registered for Income Tax. A Form TR1 must be completed and filed online with the Revenue Commissioners. If you choose to engage an accountant to file tax returns on your behalf, you should pass to him a signed consent form permitting him to act on your behalf for income tax. You should also pass to him a copy of recent Photo ID (passport, driver’s license etc ) and a recent utility bill – this is a requirement of his professional body.

Records: you should maintain a record of all coaching receipts and related payments (see later) so that an Income and Expenditure Account can be prepared for each tax year (January to December). A bank account should be opened specifically for your coaching activity and all transactions passing through this account should reflect your record of income and expenditure.

Trade Name: If you decide to trade under a name other than your own personal name, then you will be required to register this name with the Registrar of Business Names e.g. John Smith trading as “Summit Tennis”. This can be done online by your accountant. A certificate of the Trade Name will issue and the filing fee is €20. This certificate should be passed to your bank manager so that cheques made out to the trade name can be lodged to your personal coaching bank account.

Insurance: Consideration should be given to any risks associated with tennis coaching. Though many coaches carry on coaching in clubs where they are members and consider that they are covered by the Club’s insurance policy, this should be clarified and if in any doubt you should meet with the club’s insurance brokers. If not so covered, then you should meet with an experienced insurance broker who will advise of all of the risks for which you will require cover.

Taxable Earnings:

Self employed persons are taxed on the profits of the trade carried out. Profit is arrived at under accounting principles. Put simply, profit is the difference between the coaching fees earned in any year and the related expenses incurred in carrying on the trade.

“Wholly & Exclusively Rule”: this rule states that for an expense to be allowable against coaching fees, it should be incurred exclusively for the purpose of the trade. Clearly, club memberships, tennis balls, sports equipment (requiring regular replacement such as rackets), racket stringing and similar maintenance costs would be considered allowable deductions.

The following should be noted in relation to deductibility of expenses:

• If not wholly and exclusively laid out, then not deductible.
• Entertainment costs (e.g. visiting Wimbledon in June) are not deductible
• Lunches and snacks are not deductible unless in the course of an unusal trip to a location outside of the normal coaching vicinities, for example a coaching course in UK.
• capital expenditure on vehicles and significant equipment are not deductible in full. Instead, you are granted a “wear & tear allowance” of 12½%. Effectively, you can deduct the cost of such items against income evenly over 8 years.
• In general, reasonable costs in carrying on the trade are considered allowable deductions.

Motor Expenses:

• There is a restriction of motoring costs if a car value exceeds €26,000.
• There is a wear & tear allowance on a Vehicle at 12½% of the cost up to a limit of €26,000.
• The limit of €26,000 does not apply to qualifying commercial vehicles (though most coaches are unlikely to expend such an amount on a vehicle).
• An adjustment is required for the personal element of motor costs and vehicle wear & tear. This means that the personal element of motor expenses should be added back to the accounting profit (see example below).

Sample Accounts:

Taxable Coaching Income:

The Taxable Income arrived at above is then aggregated with all other income sources (P60 Salary, Social Welfare, Rental Income and spouse’s income sources, if jointly assessed). Tax is computed having due regard to standard rate bands and entitlement to tax credits and allowances.

Compliance Aspects:

1. Self employed persons are required to pay Preliminary Tax on 31 October falling in the tax year. For example, Preliminary Tax for 2014 became payable on 31 October 2014. Essentially, you must take a view on how much is likely to be earned in the tax year from coaching, determine the additional tax arising on this income and make a payment.
2.  Self employed persons must then file an Income Tax Return by 31 October following the tax year. For example, the Tax Return for 2014 should be filed by 31 October 2015. There is a late filing penalty of up to 10% of the tax liability for late submission of the return without regard to the amount of Preliminary Tax that may have already been paid the previous October.

Tax Pitfalls:

• Should gross fees from coaching exceed €37,500 in any year, you may be required to register for Value Added Tax. This should be avoided as the VAT rate of 23% may affect competitiveness with non Vat registered coaches.
• Self employed persons are not employees and therefore mileages and round sum expense claims may not be paid out of coaching fees (only costs for which receipts or invoices are held may be deducted).

Conclusion:

The above is a guide to matters that should be attended to if becoming a self employed tennis coach. Subsequent articles will deal with other legal and tax aspects of becoming self employed. Clearly, if you consider that you are not sufficiently competent to deal with these matters yourself, it is essential that you engage a properly qualified accountant to attend to these compliance aspects on your behalf.

(Brendan Meehan is a partner of Meehan & Associates, a firm of accountants and statutory auditors based in Ballinteer, Dublin).