Keep-fit tax incentive for company owners
Because of the pandemic you let your gym membership lapse but you’re about to renew it. You’ve heard that there’s a tax break relating to sporting facilities if your company provides them. Is it something you might take advantage of?
Tax deductions
If your business meets the cost of your gym membership it can claim a tax deduction for the expense, but only where it counts as a benefit in kind for you. Usually, this means you’ll pay tax and your company NI on the value of the benefit. However, there’s a special exemption for “recreational benefits”. The bad news is that membership of a public gym fails one of the main conditions for the exemption.
Trap. Any corporation tax (CT) saving achieved by your company will be significantly reduced by the Class 1A NI liability it has on the taxable benefit in kind. For example, CT relief on an annual membership of £1,000 would be £190, while the Class 1A would be £138. Plus, there’s your tax on £1,000 to take into account. Conversely, if the conditions for exemption are met there would be no tax or NI liabilities, while your company would still be entitled to the CT deduction.
Conditions
The exemption applies where your company provides or makes available to you or your family, recreational facilities and the following conditions are met:
Condition A. The facilities are available generally to all your employees.
Condition B. The facilities are not available to members of the public generally.
Condition C. The facilities are used wholly or mainly by persons whose right to use them is employment-related. The effect of this condition is to limit exemption to employees, former employees and the families of either.
Note. Condition B isn’t broken if the facilities are available to visiting workers from another business.
Trap. Even where the conditions are met some benefits are excluded, e.g. those involving overnight accommodation.
DIY and rented gyms
The good news is there are a number of ways you can make use of the exemption for gym facilities. You could:
create a gym on your business premises, say in a spare room, for use by you, your employees, and your families.
create a gym at a separate premises away from your business, e.g. in rented accommodation, as long as it’s not a residential property
rent a public gym for a short periods during which only you and your employees etc. could use it.
Shared facilities
The suggestions above might be prohibitive because of cost but there is a way around this. Tip. Sharing the cost and use of a gym or other recreational facility does not break the conditions of the exemption (specifically, condition B) but can make the arrangement more affordable. So, if you want tax-efficient gym facilities, ask other businesses in the area whether they would split the cost of creating and maintaining one. They might have space to accommodate it and with any luck showers too.
If your company pays for your membership of a public gym it can claim a tax deduction for the cost but it would count as a taxable benefit for you. This would wipe out the tax advantage. If instead your company, alone or with others, creates or hires a gym for us by employees and their families, the cost is tax deductible but is not a taxable benefit.