Imagine your gym is bringing in £8,000 a month, but you’re actually generating less revenue than another gym taking £7,000.
Sounds ridiculous, doesn’t it?
But it’s entirely possible when VAT comes into the picture.
And it’s something I think every gym owner should understand, particularly if your business is growing towards the VAT registration threshold.
Because more sales don’t always mean more money.
Let’s look at two gym owners
Imagine two gyms offering similar memberships.
Both have regular monthly income, but there’s one important difference.
One is VAT registered. The other isn’t.
Gym Owner A: £7,000 a month
Gym Owner A brings in £7,000 every month from memberships and other sales.
They’re not VAT registered, so they don’t need to account for VAT on those sales.
Their monthly revenue is £7,000.
Gym Owner B: £8,000 a month
Gym Owner B is bringing in £8,000 every month.
So you’d assume they’re doing better financially, right?
Not necessarily.
Gym Owner B is VAT registered, but hasn’t increased their membership prices to account for VAT.
That means the £8,000 they’re collecting already includes VAT at 20%.
Here’s what the figures actually look like.
GYM OWNER A · NOT VAT REGISTERED
GYM OWNER B · VAT REGISTERED
Gym Owner B is collecting £1,000 more from customers every month but has £333.33 LESS revenue before expenses.
That’s £4,000 less revenue over a full year if the same figures continue.
And that’s before we’ve even looked at the costs of running either gym.
Now, there’s an important point here.
Gym Owner B may be able to reclaim VAT on eligible business expenses, which could reduce or even outweigh that difference.
So I’m not saying Gym Owner A is automatically making more profit.
But it shows why understanding VAT before you reach the registration threshold is so important.
Why VAT can be particularly challenging for gym owners
Here’s the problem.
Most gym members are individual customers.
Unlike VAT registered businesses, they generally can’t reclaim the VAT included in their membership fees.
So when your gym becomes VAT registered, you’ve got a decision to make.
Do you increase your prices or absorb the VAT yourself?
Let’s say your gym membership currently costs £50 per month.
£60
to keep £50 of revenue excluding VAT
£41.67
revenue excluding VAT if you keep the price at £50
If you want to maintain £50 of revenue excluding VAT after registration, you’d need to increase the membership price to £60.
That’s a 20% increase for your members.
And depending on your location, competition and customer base, that might not be realistic.
Alternatively, you could keep the membership price at £50.
But once VAT is included, your revenue excluding VAT falls to £41.67 per membership.
The remaining £8.33 is VAT.
Now imagine that across 100, 200 or even 300 members.
You can see how quickly that difference starts to add up.
And that’s why I think VAT planning should be part of your gym’s growth strategy, rather than something you only think about when HMRC tells you it’s time to register.
When does a gym need to register for VAT?
In the UK, the compulsory VAT registration threshold is currently £90,000 of taxable turnover.
But here’s something that catches business owners out.
It’s not based on your financial year or the tax year.
You generally need to look at your taxable turnover over a rolling 12 month period.
That means checking your turnover at the end of every month.
For example, if your gym’s taxable turnover for the previous 12 months exceeds £90,000, you will normally need to register for VAT.
There’s also a separate rule if you expect your taxable turnover to exceed £90,000 in the next 30 days alone.
And remember, it’s taxable turnover we’re talking about, not profit.
Depending on how your gym operates, you might have income from:
It’s important to understand the VAT treatment of each income stream rather than assuming everything is treated in exactly the same way.
Is VAT registration always a bad thing?
Absolutely not!
And I wouldn’t want anyone reading this to think they should avoid growing their business because they’re worried about VAT.
There can be advantages to being VAT registered.
For example, you may be able to reclaim VAT on eligible business expenses.
For gym owners, that could include things like:
- Gym equipment
- Certain software subscriptions
- Professional fees
- Cleaning supplies
- Equipment repairs
- Other eligible business costs
If you’re investing heavily in new equipment or fitting out premises, the ability to reclaim VAT could make a significant difference.
Of course, not every expense includes recoverable VAT, and the amount you can reclaim depends on your circumstances.
But this is why you need to look at the full picture.
The problem isn’t becoming VAT registered.
It’s becoming VAT registered without understanding what it means for your business.
What I’d recommend before your gym reaches £90,000
If your gym is growing towards the VAT threshold, there are five things I’d recommend looking at.
1. Keep your bookkeeping up to date
You can’t properly monitor your turnover if your bookkeeping is six months behind.
And because the VAT threshold works on a rolling 12 month basis, waiting until your annual accounts are prepared could mean you’ve already missed the point at which you needed to register.
Keeping your bookkeeping up to date means you can see what’s happening before it becomes a problem.
2. Review your membership prices
Don’t wait until you’re VAT registered to start thinking about pricing.
Look at what happens if you increase prices, absorb the VAT or introduce smaller increases before registration.
You need to understand how each option affects your revenue, profit margins and members.
3. Look at the VAT on your expenses
Review your business costs and identify which expenses include VAT that you may be able to reclaim.
This will help you build a more realistic picture of what VAT registration could mean financially.
4. Plan your cash flow
Once you’re VAT registered, some of the money coming into your business bank account may belong to HMRC.
And that’s money you don’t want to accidentally spend!
Having a separate VAT savings pot can make it much easier to manage.
It also helps to forecast your VAT payments so you’re not caught off guard when the bill arrives.
5. Understand your profit margins
This is probably the most important one.
It’s easy to focus on how much money your gym is bringing in.
But what really matters is how much you’re left with after your costs.
If you’re increasing your turnover but your margins are shrinking, you need to understand why.
And that’s where having an accountant who understands the gym industry can make a real difference.
Growing your gym should mean improving your finances
I’m all for seeing gym owners grow their businesses.
More members, more revenue and a thriving gym are brilliant things.
But I also want you to understand what that growth actually means financially.
Because there’s no point working harder to bring in more sales if your profit margins are heading in the wrong direction.
And VAT is just one of the things that can affect that.
At Koyn Accountancy, I specialise in helping gym owners understand their numbers, stay on top of their bookkeeping and plan ahead for tax.
I’m not just interested in getting your accounts submitted and keeping HMRC happy.
I want you to feel confident about the financial side of running your gym.
Looking for a gym accountant who understands your business?
If you’re approaching the VAT registration threshold, or you’re already registered and aren’t sure how VAT is affecting your gym’s finances, I’d love to help.
At Koyn Accountancy, I work with gym owners across the UK, providing bookkeeping, VAT services, tax support and ongoing financial guidance. Find out more about how I work as an accountant for gym owners, or see my accountancy packages.
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Explore the Growth AcceleratorABOUT THE AUTHOR
Kayleigh Spowart is a CIMA Member in Practice and the owner of Koyn Accountancy, a UK accountancy practice specialising in gym owners and fitness coaches. She provides bookkeeping, VAT, tax returns and ongoing financial support, helping gym owners understand their finances and make informed business decisions. More about Kayleigh
This article uses simplified examples based on standard rated sales at 20% VAT, VAT inclusive customer prices and normal VAT accounting. The figures compare revenue rather than profit. Actual VAT liabilities and profitability depend on individual circumstances, including eligible input VAT recovery and the VAT treatment of particular supplies.