Accounting for BJJ Gyms UK: Bookkeeping & Tax Compliance Guide 2026

Accounting is not optional—it's a legal requirement under UK law. Every business operating in the UK must keep accurate financial records and file tax returns. HMRC doesn't ask if you'll comply, they ask when they can inspect your records.

Beyond legal compliance, good accounting provides business intelligence you can't operate without. You need to know: Are you profitable or subsidising members? Which months are cash-flow tight? Can you afford to hire an assistant instructor? Should you raise prices? Gut feeling doesn't answer these questions—accurate numbers do.

Poor accounting creates cascading problems: missed tax deadlines trigger £100+ penalties immediately, unknown tax bills force scrambling for cash in January, no expense records mean overpaying tax by thousands, and HMRC investigations create stress and potential backdated liabilities. Many UK gym owners fear accounting because it seems complex, but the fundamentals are straightforward once you understand the system.

This guide covers everything you need: legal requirements, HMRC registration, record-keeping standards, software options, DIY vs accountant decisions, and UK tax compliance. Whether you're just starting or cleaning up existing mess, you'll understand exactly what's required and how to stay compliant.

All Businesses (Sole Trader or Limited Company)

Every UK business must meet these minimum requirements:

• Register with HMRC: Within 3 months of starting trading. Sole traders register for Self-Assessment, limited companies are automatically registered for Corporation Tax when you register with Companies House.
• Accurate records: All income and expenses must be recorded with supporting evidence (receipts, invoices, bank statements).
• Record retention: Minimum 6 years from the end of the tax year they relate to (5 years after filing deadline). Digital records are acceptable and recommended.
• Annual tax return: Self-Assessment (sole traders) or Corporation Tax return (limited companies) filed annually.
• Pay taxes owed: By deadlines—late payment triggers interest charges and penalties.

Limited Company Specific Requirements

If you operate as a limited company (Ltd), additional requirements apply:

• Annual accounts: Must be filed with Companies House within 9 months of your accounting year-end. These become public record.
• Corporation Tax return: Filed with HMRC within 12 months of accounting year-end.
• Corporation Tax payment: Due 9 months and 1 day after accounting year-end. Miss this and HMRC charges interest immediately.
• Statutory books: Maintain register of members (shareholders), directors, people with significant control (PSC register), and company secretary if appointed.
• Confirmation statement: Annual filing (previously called Annual Return) confirming company details are correct. Fee: £50 from 1 February 2026 (increased from £34).

VAT Registration (£90,000+ Turnover)

VAT registration becomes mandatory when your taxable turnover exceeds £90,000 in any 12-month period (threshold confirmed for 2026/27 tax year). Once registered:

• VAT returns: Filed quarterly (standard), monthly, or annually depending on your choice. Making Tax Digital (MTD) compliance required—must use MTD-compatible software like Xero or QuickBooks.
• VAT invoices: Must be VAT-compliant showing your VAT number, customer details, itemised charges, and VAT amount.
• Charge VAT: Add 20% standard rate to all gym memberships and services. This increases your prices but you reclaim VAT on business expenses.
• Reclaim VAT: On eligible business expenses like equipment, rent (if landlord is VAT-registered), utilities, and supplies.
• Payment deadline: 1 month and 7 days after quarter end. Late filing penalties start at £400.

You can register voluntarily even under £90,000 threshold, which allows reclaiming VAT on startup costs (mats, equipment, refurbishment). This benefits equipment-heavy startups despite administrative burden.

Employing Staff Requirements

If you employ instructors (not just pay yourself as sole trader or director):

• Register as employer: With HMRC before first payday.
• PAYE payroll: Operate Pay As You Earn system, deducting Income Tax and National Insurance from wages.
• Employer NI contributions: You pay employer National Insurance on top of employee wages.
• RTI submissions: Real Time Information payroll submissions to HMRC on or before each payday.
• Payslips: Provide to all employees showing gross pay, deductions, and net pay.
• Auto-enrolment pension: Required if employees meet criteria (generally earning over £10,000/year and aged 22+). Employer contributes minimum 3% of qualifying earnings.

Many small gyms avoid this complexity by hiring instructors as self-employed contractors initially, though contractor vs employee status has specific legal tests that must be met.

As a Sole Trader

If operating as a sole trader (simplest structure, no legal separation between you and business):

1. Register for Self-Assessment online: Via GOV.UK website. You'll need National Insurance number and personal details.
2. Register within 3 months: Deadline is 3 months after starting trading. Late registration triggers penalties.
3. Receive Unique Taxpayer Reference (UTR): Sent by post within 10 working days. You need this for tax returns and HMRC communication.
4. First tax return deadline: 31 January following the end of the tax year in which you started. Example: Start gym July 2025, file by 31 January 2027 (for 2025/26 tax year).
5. Cost: Free to register.

From April 2026, Making Tax Digital for Income Tax (MTD ITSA) applies to sole traders with income over £50,000 (expanding to £30,000 from April 2027). This requires using MTD-compatible software and submitting quarterly updates to HMRC. Even if under threshold, using accounting software from day one makes life easier.

As a Limited Company

If operating as limited company (legal separation, limited liability, more complex but tax-efficient at higher profits):

1. Register company with Companies House: Online registration costs £100 from 1 February 2026 (increased from £50). Same-day service costs £156. You'll choose company name, register office address, director(s), and shareholder(s).
2. Automatic Corporation Tax registration: Companies House automatically notifies HMRC, who register you for Corporation Tax.
3. Receive UTR and activation code: Sent separately by post (don't lose these). UTR arrives within 10 working days, activation code within 7 days after that.
4. Set up business bank account: Required for limited companies—cannot mix personal and business finances. Most banks require seeing incorporation documents.
5. Register directors: All directors must be registered. Responsible for company legal compliance.
6. First accounts deadline: 9 months after accounting year-end for Companies House, 12 months for HMRC Corporation Tax return.

Most accountants include company registration in their setup package (£200-500 typically), handling all paperwork and ensuring correct setup from day one. Worth considering to avoid errors.

VAT Registration (If Applicable)

Register for VAT when turnover exceeds or is expected to exceed £90,000 in any 12-month period:

1. Register online via HMRC: Through Government Gateway account. You'll need business details, bank account for Direct Debit payments, and estimated turnover.
2. Receive VAT number: Within 2-3 weeks by post. Display this on all VAT invoices.
3. Start charging VAT: From your effective date (usually date you exceed threshold or date you register if voluntary).
4. First VAT return: Due 1 month and 7 days after end of first quarter. Don't miss this—penalties are swift.
5. Cost: Free to register, but you'll need MTD-compatible software (£12-35/month).

Voluntary registration makes sense if reclaiming significant VAT on startup costs (£10,000+ on mats, equipment, refurbishment). Calculate whether VAT reclaimed exceeds ongoing administrative burden before registering voluntarily.

Income Records

You must record all business income with adequate detail for HMRC verification:

• Membership fees: Direct Debit reports from GoCardless, Stripe, or payment processor. Monthly reconciliation showing all payments collected.
• Private lessons: Invoice or receipt for each session showing date, amount, and student name (not required but good practice).
• Merchandise sales: Gi sales, rash guards, t-shirts, patches. Till records or sales log.
• Seminars and workshops: Entry fees collected, number of attendees, date of event.
• Other income: Corporate wellness sessions, competition hosting, personal training, online coaching.

For each income record, note: date received, amount (gross and net if fees deducted), payer if applicable, and description. Modern gym management software like Glofox or Gymdesk integrates with accounting software, automating income recording from membership payments.

Expense Records

Every business expense needs supporting evidence. HMRC can challenge and disallow expenses without receipts.

Major regular expenses:

• Rent and occupancy costs: Monthly rent invoice or lease agreement, service charges.
• Utilities: Electric, gas, water, internet. Keep all utility bills.
• Insurance premiums: Public liability (essential), contents insurance, professional indemnity. Annual or monthly premium receipts.
• Equipment and mats: Purchase receipts for mats, crash pads, weights, pads, training equipment. Large purchases may qualify for capital allowances.
• Cleaning: Cleaning supplies (disinfectant, mops, paper towels) or professional cleaning service invoices.
• Marketing and advertising: Facebook Ads, Google Ads, flyers, local newspaper ads, website costs, photography.
• Software subscriptions: Gym management software (Glofox, Gymdesk), accounting software (Xero, QuickBooks), website hosting.
• Professional services: Accountant fees, solicitor fees for lease review, business consultants.
• Instructor wages: If employed or contractors, keep payroll records or invoices.
• Governing body fees: UKBJJA membership, affiliation fees, instructor insurance through governing body.
• DBS checks: Enhanced DBS checks cost £49.50 (government fee) plus admin fees. Essential for instructors working with children.

For each expense, record: date of purchase, supplier name, amount paid, VAT amount if applicable (keep VAT receipts over £250 for full VAT invoices), and description of what was purchased and business purpose.

VAT Records (If VAT-Registered)

More stringent requirements apply when VAT-registered:

• VAT invoices: Full VAT invoices required for purchases over £250. Must show supplier VAT number, your details, itemised charges, VAT rate and amount.
• Simplified receipts: Under £250, simplified receipts acceptable showing supplier name, VAT-inclusive amount, and VAT number.
• Output VAT: VAT you charge members on invoices. Record on all membership receipts if requested (optional for Direct Debit members but good practice to issue annual statements).
• Input VAT: VAT you reclaim on purchases. Only claimable with valid VAT receipt from VAT-registered supplier.
• Retention period: 6 years minimum. Digital copies acceptable.

Payroll Records (If Employing Staff)

Additional requirements when running payroll:

• Employee details: Full name, address, date of birth, National Insurance number, emergency contact.
• Employment contracts: Signed by both parties, outlining terms, hours, pay rate, holiday entitlement.
• Hours and wages: Timesheets or hours log, gross wages calculated, tax and NI deductions.
• Payslips provided: Every payday showing gross pay, deductions, net pay, tax code, NI number.
• P45s and P60s: P45 when employee leaves (given to employee), P60 annual summary (by 31 May each year).
• Retention period: 3 years after end of tax year. HMRC can audit payroll during this window.

Best Practice Storage

Modern best practice: digital-first record keeping.

• Scan or photograph receipts: Physical receipts fade over time (thermal paper especially). Photograph immediately using smartphone or accounting software app (Xero, QuickBooks, Dext all offer receipt capture).
• Cloud storage backup: Google Drive, Dropbox, or built into accounting software. Protects against computer failure or loss.
• Organised folder structure: Separate folders by month and category (e.g., "2026-02 Rent", "2026-02 Utilities", "2026-02 Equipment"). Makes retrieval easy during tax return preparation or HMRC enquiry.
• Naming convention: Files named consistently like "2026-02-15_Tatami_Mats_Invoice_£850.pdf" aids searching.

Physical receipts can be discarded once digitally captured and backed up, though some accountants recommend keeping for 12 months as extra insurance.

Xero (Most Popular for UK Gyms)

Pricing: £16/month (Ignite plan for small businesses), £59/month (Ultimate plan with payroll). Plans between available but pricing structure changed September 2024—check current Xero UK pricing page for exact tiers.

Features: Bank reconciliation (connects to UK banks), invoicing, expense tracking and receipt capture, VAT returns with MTD compliance, multi-currency support, payroll add-on available, integration with GoCardless and Stripe.

Integrations: Connects with most gym management software (Glofox, Gymdesk, Mindbody), GoCardless (Direct Debit), Stripe, PayPal, hundreds of apps via Xero App Store.

Best for: Most UK gyms regardless of size. Industry-standard software that any accountant will happily work with. Sole traders and limited companies both supported.

UK-specific features: Handles UK VAT perfectly, HMRC integration for MTD, Direct Debit via GoCardless native integration, UK tax year alignment.

Learning curve: Moderate. Takes 2-4 hours to learn basics, mastery within a month of regular use. Excellent YouTube tutorials and Xero Central (help resources).

Support: 24/7 online support, comprehensive knowledge base, accountant-friendly (most UK accountants prefer Xero and can access your account to help).

QuickBooks Online (Alternative Option)

Pricing: £16/month (Simple Start), up to £115/month (Advanced). Frequent introductory discounts offered (£1.60/month for first 6 months on Simple Start typical). Prices exclude VAT. Note: Significant price increases implemented January 2026 per user complaints—verify current pricing before committing.

Features: Similar to Xero—bank feeds, invoicing, expense tracking, VAT returns with MTD compliance, receipt capture mobile app, basic inventory management, project tracking.

Integrations: Wide range including gym software, payment processors (Stripe, Square, GoCardless), payroll add-ons.

Best for: Sole traders or small limited companies. Some users find QuickBooks slightly easier than Xero initially, though both are comparable.

UK-specific features: UK VAT handling, MTD for VAT compliant, integrates with HMRC, payroll available as paid add-on (Core Payroll £6+VAT/month for up to 5 employees).

Learning curve: Slightly easier than Xero for absolute beginners. Intuit (QuickBooks parent) provides extensive training materials.

Support: Phone support available on higher tiers, online chat, extensive help articles. Accountant support version available.

FreeAgent (Good for Sole Traders)

Pricing: £27/month standard rate, but 50% discount common for first 6-12 months (£13.50/month). Free with business bank accounts from NatWest, RBS, Ulster Bank, or Mettle.

Features: Designed specifically for freelancers and sole traders. Bank feeds, invoicing, expense tracking, Self-Assessment integration (auto-calculates tax bill), time tracking, project management, mileage tracking, payroll included free (no extra charge unlike competitors).

Integrations: Fewer gym-specific integrations than Xero/QuickBooks but covers payment processors (Stripe, GoCardless) and UK banks.

Best for: Sole trader gyms with simpler needs. Owner-operated gyms without employees (though payroll is included). Perfect if you bank with NatWest/RBS/Ulster Bank/Mettle (get FreeAgent completely free).

UK-specific features: Excellent UK tax support, Self-Assessment integration is superior to competitors (automatically calculates your tax bill including Class 2 and Class 4 NI), MTD compliant, UK-focused product (not US software adapted).

Learning curve: Very user-friendly. Possibly the easiest of the three for non-accountants. Clear dashboard showing exactly what you owe and when.

Support: Good online support, responsive UK-based team, extensive help centre tailored to sole traders.

Sage Business Cloud Accounting (Traditional Option)

Pricing: £18/month (Accounting Start), £39/month (Accounting Standard - most popular), £59/month (Accounting Plus). Frequent 90% off for 6 months promotions available.

Features: Bank reconciliation, invoicing, cash flow forecasting, receipt capture, VAT returns (MTD compliant), payroll add-ons, Sage Copilot AI features for report generation.

Integrations: Growing ecosystem but fewer than Xero/QuickBooks historically. Covers payment processors and UK banks.

Best for: Established businesses, particularly if your accountant recommends Sage (some accountants prefer Sage from traditional use). Works for both sole traders and limited companies.

UK-specific features: Strong UK VAT handling, payroll add-ons available, MTD compliant, UK-focused company with decades of UK accounting software experience.

Learning curve: More traditional interface compared to Xero/QuickBooks. Some users find it less intuitive, others prefer familiar layout.

Support: UK-based support, long-established company, accountant-friendly.

Wave (Free Option)

Pricing: Free for basic accounting (income, expenses, invoicing, receipt scanning). Paid add-ons for payroll and payment processing (Stripe/card payments).

Features: Basic bookkeeping, unlimited invoicing, receipt scanning, bank connections, reporting (Profit & Loss, Balance Sheet), multi-currency.

Integrations: Limited compared to paid options. Basic payment processor support.

Best for: Very small gyms, tight budgets, simple needs, startup phase before you can afford £12-35/month paid software. U.S.-based product so less UK-focused.

UK-specific features: Less UK-focused than competitors. Does not support Making Tax Digital for VAT (major limitation if VAT-registered). UK banks supported but fewer features than UK-native products.

Learning curve: Very simple—it's free because it offers basics only. Easy to outgrow.

Limitations: No MTD for VAT (deal-breaker if VAT-registered), limited support (community forum only, no phone/chat), fewer features than paid alternatives, not as accountant-friendly.

Recommendation by Business Type

Most UK gyms: Xero (£16-59/month) is the industry standard. Integrates perfectly with gym management software, GoCardless Direct Debit, and any UK accountant will happily work with it. Worth the investment.

Sole traders on budget: FreeAgent (£14-27/month, or free with certain bank accounts) is UK tax-friendly, includes payroll, and has excellent Self-Assessment integration.

Very small gyms / startups: Wave (Free) covers basics but plan to upgrade when you grow or need VAT compliance.

Integration priority: Choose software that connects with your gym management software. Automated data flow from Glofox/Gymdesk/Mindbody to Xero/QuickBooks saves hours monthly and prevents errors.

Step 1: Choose Your Accounting Software

Consider three factors:

1. Business structure: Sole trader vs limited company. Both work with Xero/QuickBooks, but FreeAgent particularly suits sole traders.
2. Budget: £12-35/month typical. If cash-strapped initially, start with Wave (free) but budget to upgrade within 6-12 months.
3. Integration needs: Does it connect with your gym management software (Glofox, Gymdesk, Mindbody) and payment processor (GoCardless, Stripe)? Seamless integration saves hours of manual data entry monthly.

Sign up for free trial (most offer 30 days). Test the interface, connect your bank, and run a few transactions before committing to annual subscription.

Step 2: Set Up Your Chart of Accounts

Your chart of accounts categorises every transaction. Most software includes standard categories, but customise for gyms:

Revenue categories:

• Membership fees (main category)
• Private lessons
• Merchandise sales (gi, rash guards, t-shirts)
• Seminars and workshops
• Corporate wellness sessions
• Competition hosting
• Other income

Expense categories:

• Rent and occupancy costs
• Utilities (electric, gas, water, internet)
• Insurance (public liability, contents)
• Marketing and advertising (Facebook Ads, Google Ads, local marketing)
• Equipment (mats, pads, training equipment)
• Cleaning supplies and services
• Software subscriptions (gym management, accounting)
• Professional services (accountant, solicitor)
• Instructor wages (if employed/contracted)
• Governing body fees
• DBS checks
• Training and development
• Bank charges and merchant fees
• Travel (seminars, training, competitions)
• Miscellaneous

Good categorisation makes tax return preparation and business analysis easy. You'll see exactly where money goes—"Why is marketing £800 this month when usually £300?" becomes instantly visible.

Step 3: Connect Your Bank Account

Modern accounting software connects directly to your business bank account via open banking (secure, read-only access):

1. Add your bank in software settings
2. Authenticate via your bank's login (two-factor authentication typical)
3. Transactions import automatically (daily or weekly depending on software)
4. Categorise each transaction—software learns patterns over time ("Rent from [Landlord] always = Rent category")

Bank feeds eliminate manual data entry and catch transactions you might forget. Reconciliation becomes quick check that everything imported correctly.

Step 4: Set Up Recurring Transactions

Many gym expenses recur monthly or annually. Set these up once and software auto-creates them:

• Rent: Same amount, same date monthly
• Insurance: Annual or monthly depending on payment plan
• Software subscriptions: Glofox, Gymdesk, Xero/QuickBooks—monthly on same date
• Utilities: Monthly (amount varies but transaction auto-creates for you to adjust)

Saves time vs manual entry each month. Software reminds you if recurring transaction doesn't appear ("Rent usually posts on 1st, it's 5th and nothing yet—check with landlord").

Step 5: Connect Payment Processors

Direct integration between gym management software, payment processors, and accounting software creates seamless data flow:

• GoCardless integration: Membership fees collected via Direct Debit automatically appear in accounting software as income. Fees deducted automatically categorised. Perfect for recurring revenue.
• Stripe integration: Online payments (joining fees, merchandise, one-off payments) sync automatically. Card fees deducted visible in reports.
• Automatic reconciliation: Payment from member in gym software matches transaction in accounting software. No manual entry required.

Glofox, Gymdesk, and Mindbody all offer Xero/QuickBooks integrations. Set up takes 30 minutes following their guides, but saves 2-5 hours monthly.

Step 6: Establish Monthly Routine

Accounting isn't set-and-forget. Monthly routine prevents year-end scrambles:

1. Reconcile bank account: Confirm all transactions imported correctly and are categorised. Spot errors immediately ("Why is there a £500 transaction I don't recognise?").
2. Categorise uncategorised expenses: Bank feed imports transactions but you must categorise them. Takes 20-40 minutes monthly once you're familiar with software.
3. Review Profit & Loss statement: Is the gym profitable this month? How does it compare to last month, last year? Spot trends early.
4. Check cash flow forecast: Can you afford upcoming expenses? Tax bill due in 3 months—have you saved enough?
5. File away receipts: Physical receipts into labelled folder or discard if already digitally captured.

Time required: 1-3 hours/month once system established and you're familiar with software. First few months slower as you learn, but becomes quick routine.

DIY Accounting (Using Software)

Cost: £12-35/month for software only. No accountant fees.

Time investment: 2-5 hours/month for bookkeeping once established. Steeper learning curve initially (10-20 hours first month learning software and setup). Additional time for tax return preparation (5-10 hours annually).

Best for: Simple sole trader gyms with straightforward income/expenses, tight budgets where every £1,000 saved matters, financially literate owners comfortable with numbers and self-teaching, early stage (first 1-2 years) when profits don't justify accountant cost.

What you handle: Day-to-day bookkeeping (categorising transactions), expense receipt management, invoicing if applicable, monthly reconciliation.

What you may still need help with: Year-end tax return preparation (even with software, many sole traders pay accountant £400-600 for this), tax planning and advice, complex questions ("Should I incorporate?", "How do I reclaim VAT on equipment?").

Risks: Mistakes in categorisation lead to over/underpaying tax, missing deadlines if you forget dates, no proactive tax planning means missing savings opportunities, HMRC enquiries more stressful without professional support.

Bookkeeper (Handles Day-to-Day)

Cost: £100-300/month or £18-40/hour for bookkeeping services. Cheaper than full accountant but still professional support.

Services: Categorises transactions for you, reconciles bank accounts monthly, manages expense receipts (you submit, they organise), chases unpaid invoices if you invoice clients, prepares basic reports (Profit & Loss, Balance Sheet).

Best for: Gym owners who hate bookkeeping or lack time, growing gyms where owner time better spent coaching/marketing, those who need day-to-day help but can handle tax returns themselves or with separate accountant.

You still need: Accountant for year-end tax return, tax planning, and strategic advice. Bookkeeper handles routine, accountant handles tax compliance and planning.

Time saved: 2-5 hours/month bookkeeping handled by bookkeeper, freeing you for coaching, marketing, or simply less stress.

Accountant (Tax & Strategy)

Cost: £400-1,000/year for sole trader Self-Assessment only, £1,000-2,000/year for limited company basic compliance (accounts + Corporation Tax return), £2,000-4,000/year for limited company with bookkeeping included, £3,000-6,000+/year for full-service (everything handled).

Services: Year-end accounts preparation, tax return filing (Self-Assessment or Corporation Tax), tax planning and advice ("You should register for VAT now to reclaim costs"), HMRC liaison if enquiries or investigations, strategic advice ("At £60K profit, consider incorporating for tax efficiency").

Best for: Limited companies from day one (compliance requirements complex), VAT-registered businesses, owners who want expert guidance, anyone earning £40K+ profit where tax planning savings exceed accountant fees.

Value beyond compliance: Tax savings often exceed accountant fees. Good accountant identifies savings you'd miss: "Claim capital allowances on £15K mats = £3,750 tax saved" or "Structure as salary + dividends saves £2,400/year vs salary only." ROI is measurable.

Full-Service (Accountant + Bookkeeper)

Cost: £2,000-5,000+/year depending on complexity and gym size. Premium pricing for hands-off solution.

Services: Everything—you approve payments and review monthly reports, they handle all bookkeeping, reconciliations, tax returns, HMRC communication, strategic advice, and compliance.

Best for: Larger gyms (100+ members), multiple locations, owners who want to focus 100% on coaching and business development (not admin), high earners (£80K+ profit) where accountant cost is small % of income.

ROI calculation: If your time is worth £50/hour and full-service saves 5 hours/month, that's £3,000/year value plus tax savings plus stress reduction plus compliance confidence.

Recommendation by Stage

Year 1 (Sole Trader): DIY with software (save money, learn your numbers) + accountant for tax return (£400-600). Total: ~£1,200/year.

Year 1 (Limited Company): Accountant from day one. Setup and compliance complex enough that DIY risks costly errors. Cost: £1,000-2,000/year.

Year 2+ (Growing, either structure): Bookkeeper + accountant. Bookkeeper handles monthly routine (£1,200-3,600/year), accountant handles tax (£1,000-2,000/year). Total: £2,200-5,600/year. Your time freed for growth.

Mature/Large Gym (100+ members): Full-service accounting. Cost: £3,000-5,000/year. Focus entirely on coaching, marketing, member experience while professionals handle finances.

See our guide to finding the right UK accountant for your gym.

Sole Trader Tax Obligations

If operating as sole trader, you pay Income Tax and National Insurance on all business profits (income minus expenses).

Income Tax rates 2026/27:

• Personal allowance: £12,570 (no tax on first £12,570 income)
• Basic rate (20%): £12,571-£50,270
• Higher rate (40%): £50,271-£125,140
• Additional rate (45%): Over £125,140

Personal allowance reduces if total income exceeds £100,000 (£1 allowance lost for every £2 over £100,000). Fully removed at £125,140+ income.

National Insurance contributions:

• Class 2 NI: £3.65/week (£190/year) if profits over £12,570/year. Voluntary below this threshold. Paid via Self-Assessment.
• Class 4 NI: 9% on profits £12,570-£50,270, then 2% on profits over £50,270. Paid via Self-Assessment.

Self-Assessment deadline: 31 January following end of tax year. Example: 2026/27 tax year (6 April 2026 to 5 April 2027) return due 31 January 2028. Online filing only from 2024 onwards (paper returns no longer accepted except in exceptional circumstances).

Payment on Account: If tax bill exceeds £1,000, HMRC requires you to pay half your estimated tax for next year on 31 January and 31 July (in addition to balancing payment). Catches many sole traders by surprise. Example: 2026/27 tax bill is £6,000. Pay £6,000 balance 31 January 2028, plus £3,000 on account for 2027/28, plus £3,000 on account 31 July 2028. Total: £12,000 in one 6-month period.

Limited Company Tax Obligations

Limited companies pay Corporation Tax on company profits, then directors pay Income Tax and NI on salary and dividends they take out.

Corporation Tax 2026/27:

• Small profits rate (19%): For companies with profits below £50,000
• Main rate (25%): For companies with profits over £250,000
• Marginal relief: Companies with profits between £50,000-£250,000 pay marginal relief rate (19-25% sliding scale)

Example: Company makes £100,000 profit. Corporation Tax is approximately £24,750 (effective rate ~24.75% due to marginal relief calculation). Exact calculation complex—accountant handles this.

Director's Salary: Typically set at £9,100-£12,570/year (tax-free personal allowance or National Insurance Lower Earnings Limit). Minimises tax/NI whilst qualifying for State Pension contributions.

Dividends: Remaining profits distributed as dividends after Corporation Tax paid. Dividend allowance: £500 for 2026/27 (first £500 tax-free). Dividend tax rates from April 2026:

• Basic rate: 10.75% (increased from 8.75%)
• Higher rate: 35.75% (increased from 33.75%)
• Additional rate: 39.35% (unchanged)

Salary + dividend strategy typically saves £2,000-5,000/year tax vs salary-only for owners earning £40K-80K. Accountant optimises this for your situation.

Corporation Tax deadline: 9 months and 1 day after accounting year-end. Miss this and HMRC charges interest from deadline. Example: Year-end 31 March 2026, Corporation Tax due 1 January 2027.

Accounts filing: 9 months after year-end with Companies House (public record), 12 months after year-end with HMRC.

VAT Obligations (If Registered)

Charge VAT: 20% standard rate on all gym memberships and services. Increases your prices but members pay it, not you—you're collecting it for HMRC.

Reclaim VAT: On eligible business expenses. Equipment, rent (if landlord VAT-registered), utilities, supplies, software—all reclaimable. Typical gym reclaims 30-50% of VAT collected.

VAT Return: Quarterly submission (standard), monthly, or annually (if opted in). Shows VAT charged to customers (output tax) minus VAT paid on expenses (input tax). Pay the difference to HMRC.

VAT Payment: Due 1 month and 7 days after quarter end via Direct Debit. Example: Quarter 1 Jan-Mar 2026, return due 7 May 2026, payment collected by Direct Debit same day.

Making Tax Digital: Must use MTD-compatible software (Xero, QuickBooks, FreeAgent, Sage). Paper/spreadsheet returns not accepted since 2019 for VAT-registered businesses.

Penalties: Late filing triggers £400 penalty immediately. Repeated late filing escalates to £600, £900, £1,200+ penalties. HMRC is strict—don't miss deadlines.

Flat Rate VAT Scheme: Simplification for small businesses (under £150,000 turnover). You charge 20% VAT to customers but pay HMRC lower flat rate (typically 13-14.5% depending on business type). Keep the difference as compensation for not reclaiming input VAT (except on capital purchases over £2,000). Can be beneficial if you have low expenses, but requires calculation comparing standard vs flat rate schemes for your specific numbers. Accountant can model this.

1. Mixing Personal & Business Finances

The problem: Using personal bank account for business transactions, or mixing personal spending on business account. Opens up personal finances to HMRC scrutiny if investigated, makes accounting nightmarish ("Which of these 50 transactions are business?"), and can pierce limited company protection—if company and personal funds are mixed, court may hold you personally liable for company debts.

The solution: Separate business bank account from day one. All business income into business account, all business expenses from business account. Pay yourself regular salary/drawings to personal account, then spend personally from there. Clean separation.

2. Not Keeping Receipts

The problem: Can't claim expenses without proof if HMRC queries. Accountant preparing tax return asks "What about equipment purchases?" but you have no receipts—thousands in legitimate expenses disallowed. Result: overpaying tax by £1,000s.

The solution: Digital receipt scanning immediately after purchase using accounting software mobile app (Xero, QuickBooks, Dext) or smartphone photos filed into cloud storage (Google Drive "Receipts 2026" folder). Takes 30 seconds per receipt. Physical receipts fade over time, digital lasts forever.

3. Missing Tax Deadlines

The problem: Late Self-Assessment triggers £100 fine immediately (even if no tax owed). 3 months late: additional £10/day penalty up to £900. 6 months late: further £300 or 5% of tax (whichever higher). 12 months late: another £300 or 5% of tax. Plus interest on unpaid tax from deadline. Late Corporation Tax incurs immediate interest charges plus penalties. Late VAT returns: £400+ penalties.

The solution: Calendar reminders set 1 month before deadlines (gives buffer). Accountant manages deadlines if you hire one. Monthly tax savings pot—set aside 25-30% of profit into separate "Tax Savings" account so cash available when bill arrives.

4. Not Registering for VAT (When Required)

The problem: Turnover hits £90,000 threshold, you forget to register or don't realise you must. HMRC discovers during investigation or compliance check. They backdate VAT—you owe VAT on all sales since threshold exceeded, but you didn't charge members so it comes from your pocket. Plus late registration penalties (£400+).

The solution: Track turnover monthly. When approaching £85,000 (£5K buffer), prepare to register. Register immediately upon exceeding £90,000. Accountant or software can alert you if turnover approaching threshold. Better to register slightly early than face backdated bills.

5. Claiming Non-Business Expenses

The problem: Claiming personal meals ("I thought about the gym while eating"), personal clothing (unless branded gym-only wear), commute from home to gym (if gym is your normal workplace). HMRC investigates, disallows these claims, charges tax on incorrectly claimed amount plus penalties for "careless" or "deliberate" errors (15-100% penalties possible).

The solution: Only claim genuine business expenses with clear business purpose. When in doubt, ask accountant or don't claim it (better safe than sorry). HMRC guidance clear on what's allowable—read GOV.UK information on allowable expenses.

6. No Emergency Tax Fund

The problem: Tax bill arrives 31 January (Self-Assessment) or 9 months after year-end (Corporation Tax). Many gym owners forget to save cash for this and scramble to pay or miss deadline (triggering penalties and interest). Problem amplified by Payment on Account for sole traders—second payment due 31 July catches many completely off-guard.

The solution: Save 25-30% of monthly profit into separate "Tax Savings" account. Sole trader earning £40K profit: save £12K over year (30%), ready for January tax bill. Limited company with £60K profit: save £15K for Corporation Tax due 9 months after year-end. Money's already set aside when bill arrives—no panic.

7. Poor Expense Categorisation

The problem: Everything categorised as "General Expenses" or "Miscellaneous". Can't analyse where money goes. Are mats expense increasing? Is marketing spend effective? No idea—it's all lumped together. Tax return preparation harder, business intelligence nonexistent.

The solution: Use proper categories from day one (Step 2 in setting up accounting system above). Takes 5 seconds per transaction: "Tatami invoice = Equipment", "Utility bill = Utilities". After a month, software learns patterns and auto-suggests categories. Monthly review of Profit & Loss by category reveals spending patterns immediately.

Fully Deductible Business Expenses

These expenses reduce your taxable profit pound-for-pound:

• Rent and business rates: Monthly rent for premises, service charges, business rates (property tax on commercial property).
• Utilities: Electric, gas, water, internet, business phone if commercial premises. If working from home portion of time, can claim proportion of home utilities.
• Insurance: Public liability insurance (essential), contents insurance for equipment, professional indemnity if offering coaching services.
• Equipment and mats: BJJ mats, crash pads, weightlifting equipment, pads, training dummies. Large purchases may qualify for capital allowances (see below).
• Marketing and advertising: Facebook/Instagram Ads, Google Ads, flyers, local newspaper/radio ads, website design and hosting, photography/videography for marketing, SEO services.
• Website and software subscriptions: Gym management software (Glofox, Gymdesk, Mindbody), accounting software (Xero, QuickBooks), website hosting, CRM tools.
• Instructor wages: If employing or contracting instructors, wages/fees paid are deductible (ensure compliance with employment law on contractor vs employee status).
• Professional services: Accountant fees, bookkeeper fees, solicitor fees for lease review or business advice, business consultancy.
• Cleaning: Cleaning supplies (disinfectant, mops, paper towels), professional cleaning service fees.
• Governing body memberships: UKBJJA affiliation, instructor insurance through governing body, competition registration as gym.
• DBS checks: Enhanced DBS checks for instructors (£49.50 government fee + admin fees). Essential safeguarding cost for working with children.
• Bank charges: Business account monthly fees, transaction fees, overdraft interest if applicable.
• Training and development: Your own BJJ training (seminars, camps, instructor courses) if genuinely for developing instructor skills. Private training purely for personal enjoyment not allowable, but instructor development is.
• Travel: Travel to seminars for instructor development, travel to away competitions with competition team (if genuine business purpose), travel to other gyms for research/networking. Not commute from home to gym if gym is your normal workplace.

Partially Deductible (Business Use Proportion)

If used for both business and personal purposes, claim business use percentage only:

• Mobile phone: If used for both business and personal, estimate business use (e.g., 60% business calls/data) and claim 60% of bill. Simplest: dedicated business phone (100% claimable).
• Vehicle: If used for business and personal, claim business mileage at HMRC-approved rate (45p/mile first 10,000 miles, 25p/mile thereafter for 2026/27) OR claim proportion of actual costs (fuel, insurance, repairs, depreciation) based on business use %. Mileage typically simpler and more beneficial. Commute home-to-gym not claimable, but gym-to-seminar or gym-to-bank is.
• Home office: If working from home for admin (not coaching at home), can claim proportion. Calculate square footage of home office vs total home, or number of rooms used exclusively for business. Example: Home office is 10% of home, claim 10% of mortgage interest/rent, utilities, council tax, home insurance. Must be exclusively business use—kitchen table where you also eat doesn't qualify.

Not Deductible

Common mistakes—these expenses are NOT allowable:

• Personal training expenses: Your personal membership at another gym for your own training (not business purpose unless researching competitor). Your own BJJ competition entry fees for personal competition (not coaching team).
• Personal clothing: Your personal gi or training gear, regular clothing. Exception: Branded gym uniform/gi worn only for coaching and bearing gym logo/branding (this is allowable as business uniform).
• Fines and penalties: Parking tickets, speeding fines, late filing penalties—never deductible.
• Client entertaining: Taking members out for meals/drinks. HMRC disallows "entertaining clients" as expense. Staff entertaining (Christmas party for instructors) is allowable up to £150/head annually.
• Personal meals: Your lunch during workday, even if working. HMRC treats this as personal expense (you'd eat anyway). Business travel meals (when travelling to seminar away from normal area) are allowable.

Capital Allowances (Larger Purchases)

Expensive equipment may not be fully deductible in purchase year but instead qualify for capital allowances spread over years or claimed fully under Annual Investment Allowance:

Annual Investment Allowance (AIA): Deduct 100% of qualifying equipment cost up to £1,000,000 in year of purchase (threshold for 2026/27). Qualifying items: Mats, crash pads, weightlifting equipment, computers, office furniture, training equipment, vehicles. Example: Purchase £15,000 of new mats. Claim full £15,000 deduction in year of purchase under AIA. Saves £2,850 tax at 19% Corporation Tax or £3,750 at 25% higher rate Income Tax plus NI.

First Year Allowance (from 2026): New 40% first-year allowance introduced January 2026 for plant and machinery if AIA already used or expenditure exceeds AIA. Claim 40% of cost in first year, remaining 60% via Writing Down Allowance.

Writing Down Allowance: 14% per year (reduced from 18% from April 2026) on remaining value. Used after AIA exhausted or for items not qualifying for AIA.

Most gyms never exceed £1M AIA so can claim full equipment costs immediately. Accountant handles capital allowances calculations and claims—complex rules best left to professionals.

What is Making Tax Digital?

Making Tax Digital (MTD) is HMRC's initiative requiring digital record-keeping and digital filing of tax returns. Goal: reduce errors, improve real-time visibility into tax obligations, and modernise UK tax system.

MTD for VAT (Already Mandatory)

Mandatory since April 2019 for VAT-registered businesses with turnover over £85,000 (all VAT-registered businesses from April 2022 regardless of turnover).

Requirements:

• Keep digital VAT records using MTD-compatible software (Xero, QuickBooks, FreeAgent, Sage, others)
• Submit VAT returns digitally via MTD-compatible software (not manual entry on HMRC website, not paper returns)
• Maintain digital links in record-keeping process (no manual copying numbers from spreadsheet to software—must be digitally linked or in single system)

Compliance: Use approved accounting software (Xero, QuickBooks, etc.) from day one and you're automatically compliant. Software submits VAT returns directly to HMRC via secure connection.

MTD for Income Tax (Rolling Out 2026-2028)

Being introduced for sole traders and property landlords (not limited companies, who already file digitally).

Rollout schedule:

• From 6 April 2026: Mandatory for sole traders and landlords with gross income over £50,000
• From 6 April 2027: Threshold lowers to £30,000 gross income
• From 6 April 2028: Threshold lowers to £20,000 gross income

Requirements (when applicable to you):

• Keep digital records using MTD-compatible software
• Submit quarterly updates to HMRC (not full tax returns—summary of income and expenses for quarter)
• Annual finalisation (equivalent to current Self-Assessment) still required

Quarterly update deadlines: Within one month of end of quarter. Example: Quarter 6 April-5 July, update due 5 August.

Soft landing 2026/27: No penalty points awarded for late quarterly updates during first year (2026/27) to allow adjustment period. Full penalties apply from 2027/28.

What this means for you: If you're sole trader with gym income over £50,000, you must use accounting software and submit quarterly updates from April 2026. If under £50,000, you have until April 2027 (if over £30K) or April 2028 (if over £20K).

How to prepare: Use accounting software now (Xero, QuickBooks, FreeAgent) even if not yet required. When MTD ITSA applies to you, you're already compliant. Trying to switch from spreadsheets/paper to software under pressure is stressful—start digital today.

MTD Compliance Steps

1. Choose MTD-compatible software: Xero, QuickBooks, FreeAgent, Sage all comply. Check HMRC's approved software list if using other products.
2. Keep digital records from start: All income and expenses recorded digitally. Photos of receipts, digital bank feeds, categorised transactions—all within software.
3. File via software: VAT returns (if applicable) and quarterly updates (when MTD ITSA applies) submitted directly from software to HMRC. One-click submission once data entered.
4. Retain digital records: 6 years minimum. Cloud storage ensures compliance even if computer crashes.

Bottom line: Use modern accounting software and you're MTD compliant without thinking about it. Try to avoid software and you'll be forced to adopt it eventually—better to start now.

End of Financial Year Tasks (All Businesses)

Financial year-end requires comprehensive review to prepare accurate tax returns:

• Reconcile all bank accounts: Ensure every transaction imported and categorised correctly. Any unexplained transactions? Investigate now, not when HMRC asks.
• Review Profit & Loss statement: Check for errors—unusual spikes or drops in categories. £5,000 equipment expense in one month—do you have receipt? Missing receipts need chasing now.
• Review Balance Sheet (if Ltd company): Assets, liabilities, equity correct? Director's loan account balanced?
• Gather missing receipts/invoices: Any gaps in expense records? Contact suppliers for duplicate invoices if needed. Better now than during tax return prep.
• Calculate total revenue and profit: Is this profitable year? If loss, understand why—is gym viable or do changes need making?
• Prepare information for accountant: If using accountant, provide full bank statements, income records, expense receipts, notes on unusual transactions. The cleaner your records, the cheaper accountant fee (less time investigating).

Sole Trader Specific Tasks

• Complete Self-Assessment tax return: Online via HMRC portal or via accountant. Report all business income and expenses, calculate profit, calculate Income Tax and NI owed.
• Calculate total tax liability: Income Tax + Class 2 NI + Class 4 NI. Includes Payment on Account if required (50% of next year's estimated tax).
• File return by 31 January deadline: Online filing opens October each year for previous tax year. Don't leave to deadline—aim for filing by end of December (gives buffer for mistakes/problems).
• Pay tax by 31 January: Direct Debit typically, or bank transfer quoting your UTR reference. If using accountant, they'll tell you exact amount.
• Set up Payment on Account: If tax bill over £1,000, HMRC automatically sets up Payment on Account—first payment 31 January (same day as balancing payment), second payment 31 July. Be prepared—you're paying for current year AND advance for next year simultaneously.

Limited Company Specific Tasks

• Prepare annual accounts: Profit & Loss statement, Balance Sheet, notes to accounts. Most accountants prepare these (not typical for owners to DIY due to legal requirements and complexity).
• Calculate Corporation Tax owed: Profit × Corporation Tax rate (19-25% depending on profit level). Dividend planning—how much profit to distribute vs retain in company?
• File accounts with Companies House: Deadline 9 months after accounting year-end. Example: Year-end 31 March 2026, accounts due 31 December 2026. Public record—anyone can view these.
• File Corporation Tax return with HMRC: Deadline 12 months after year-end. Example: Year-end 31 March 2026, CT return due 31 March 2027.
• Pay Corporation Tax: Deadline 9 months and 1 day after year-end. Example: Year-end 31 March 2026, CT payment due 1 January 2027. Miss this and interest charges apply immediately.
• Dividend vs salary strategy: Review with accountant optimal mix of salary (minimise NI) and dividends (lower tax rates but Corporation Tax already paid) for your profit level. Strategy changes with profit—no one-size-fits-all.

VAT-Registered Businesses

VAT operates separately from year-end (quarterly deadlines throughout year):

• File quarterly VAT returns: Throughout year as they fall due (within 1 month + 7 days of quarter end). Don't wait for year-end—deal with quarterly.
• Pay VAT owed: Direct Debit collection day return due. Set up Direct Debit so payment automatic (avoids missing deadline).
• Annual reconciliation check: Year-end is good time to review full year VAT position. Total VAT charged vs total VAT reclaimed—does it match expectations? Any discrepancies suggest errors in categorisation or missing receipts.

What to Look For

Not all accountants suit all businesses. Gym-specific considerations:

• Small business experience: Accountants working mainly with large corporations don't understand small gym challenges. Seek accountants with small business (especially service businesses or fitness industry) experience.
• Proactive tax planning: Reactive accountants just file tax returns (compliance). Proactive accountants advise: "Register for VAT now to reclaim startup costs", "Consider incorporating at £60K profit for tax efficiency", "Claim capital allowances on mats purchase". Proactive advice saves multiples of accountant fees.
• Clear fee structure: Fixed fee better than hourly—you know exact cost upfront. "£1,200/year for accounts and tax return" vs "£150/hour" (where you never know final bill). Fixed fee incentivises accountant efficiency.
• Responsive communication: Accountant who takes 5 days to reply to simple email causes stress. Look for 1-2 day response time maximum. Check reviews for communication feedback.
• Cloud accounting expertise: Accountants familiar with Xero, QuickBooks can access your accounts remotely, help with setup, answer questions without you emailing spreadsheets. Modern accountants work cloud-first.
• Local or national firm: Both work fine. Local allows face-to-face meetings if you prefer, national firms often cheaper with slicker online systems. Personal preference.

Questions to Ask Prospective Accountants

Interview 2-3 accountants before choosing:

1. What services are included in your fee? Clarify exactly what's covered—accounts preparation? Tax return? VAT returns? Advisory calls? Or just tax return filing (minimal service)?
2. Do you work with other gym owners or fitness businesses? Industry familiarity helps—they understand your business model, common expenses, sector-specific issues.
3. What accounting software do you recommend? Should say Xero or QuickBooks (modern cloud software). If they suggest spreadsheets or outdated desktop software, red flag.
4. How do you communicate (email, phone, face-to-face)? Match your preference. If you want face-to-face meetings quarterly but they're online-only, not good fit.
5. What is your process for tax planning? Should outline annual review calls, proactive suggestions, strategy for minimising tax. If answer is "we file your return", they're not doing tax planning.
6. Do you offer bookkeeping or just tax services? Some accountants offer bookkeeping add-on, others expect you to handle it or hire separate bookkeeper. Clarify scope.
7. What's your typical response time? Day? Week? Faster better, especially approaching deadlines.
8. Can you help with HMRC enquiries or investigations? Included or extra fee? Most include basic support, complex investigations may cost extra.

Where to Find Accountants

• Recommendations from other gym owners: Best source—ask gym owners in local area or BJJ online communities who they use and if happy. Personal referral beats marketing.
• Local business networks: Chamber of Commerce, BNI, local business groups often have accountant members. Networking event introduction better than cold contact.
• Online directories: Xero and QuickBooks maintain directories of certified advisors (accountants trained on their software). Search by location and read reviews.
• Google search: "[Your City] accountant small business" or "[Your City] accountant fitness industry". Read websites, check reviews (Google, Trustpilot), shortlist 2-3.

Typical Accountant Fees (2026)

Sole Trader (Self-Assessment only): £400-1,000/year depending on complexity and location (London higher). Includes preparing and filing Self-Assessment tax return. Basic sole trader with straightforward income/expenses: £400-600. More complex (multiple income streams, lots of expenses, capital allowances): £700-1,000.

Sole Trader (Self-Assessment + bookkeeping): £1,200-2,000/year. Accountant or bookkeeper handles monthly transaction categorisation, reconciliation, providing you quarterly reports. You review and approve, they handle detail. Plus year-end tax return.

Limited Company (basic compliance): £1,000-2,000/year. Includes preparing annual accounts, filing with Companies House and HMRC, Corporation Tax return, Confirmation Statement. You handle bookkeeping or use software, accountant does compliance.

Limited Company (compliance + bookkeeping): £2,000-4,000/year. Monthly bookkeeping support plus year-end compliance. Accountant or bookkeeper keeps books tidy monthly, accountant finalises year-end.

Limited Company (full service): £3,000-6,000+/year. Everything handled—bookkeeping, payroll (if applicable), VAT returns quarterly, accounts, tax returns, advisory. You focus on gym, they handle all finances.

VAT returns: If VAT-registered, add £200-600/year (£50-150 per quarterly return) if accountant handles these. Many include in full-service packages.

Payroll: If employing staff, payroll typically £5-15/employee/month depending on complexity and number of employees.

Investment worthwhile: Good accountant saves more in tax than their fee costs, plus saves hours of your time, reduces stress, and ensures compliance. ROI measurable.

See our full guide on finding specialist UK accountants for BJJ gyms.