Tax-free Employee Benefits:
Sports & Fitness
Claim Sporting and Fitness Tax Benefits
WITH the Olympics just around the corner you may be feeling a bit more sporty than usual. And small business owners may be wondering whether they can claim sporting activities against tax.
Sport and tax do not usually mix, but there are a few ways you can combine an active lifestyle with sensible tax planning. Most of these are only relevant to large employers but there is scope for small business owners to reduce their tax bills.
Many large companies have on-site gyms or run sporting facilities on behalf of their staff such as playing fields, clubhouses and squash courts. These are tax-free under section 261 of ITEPA 2003 provided that they are:
- Generally available to all employees
- Not provided on domestic premises
- Not generally available to the public at large
- Not used for holidays or overnight accommodation
- Not vehicles or vessels such as go-karts or motor boats
Effectively, the sports facilities must be on premises owned or rented by the employer, or perhaps by a few employers clubbing together.
Unfortunately, membership of local sports or fitness clubs is not generally tax-free as they are open to the public too. If you paid for your staff to join a local club, it would normally have to be treated as a taxable benefit.
Such memberships may be tax-free if your employees are only allowed to use the facilities at particular times when the club is closed to the general public. In other words, you would have to reserve the club for your own staff, perhaps for one night a week.
In practice this is unlikely because most private clubs allow their members to use the facilities at all times.
You may have more luck making a block-booking at a public sports centre run by (or on behalf of) a local authority, but these tend to be restricted to outdoor facilities such as tennis courts or football pitches. You cannot usually block-book gyms or swimming pools, except for special events (such as school swimming galas).
If you do make a block-booking for your staff, make sure it is in the company name (or your own name if you are a sole trader) not the person making the booking. The bill should also be paid by the business, not reimbursed on expenses to the person who booked it.
Recreational facilities are tax-free provided they satisfy the criteria listed above. This is a much more practical alternative for smaller businesses as it is far less expensive to buy your staff a pool table or table tennis table than a fully equipped gym. One of my clients even bought his staff an old Space Invaders machine!
However, the facilities must be mainly for the use of your own staff (including you). If they turn out to be used mainly by your customers or guests, then it would be treated as business entertaining instead, which is disallowable against both VAT and corporation tax.
Also, the facilities must not be provided on domestic premises, so if you work from home you would not be able to do anything like this.
Your Own Personal Trainer!
Essentially you hire a fitness instructor to coach you and your staff through a fitness programme. You could buy group sessions, for those willing to commit, or just have the trainer turn up once a week, for those interested in participating on the day.
It would be important to include everyone as sports facilities must be made available to all your staff generally. You cannot restrict them to yourself or to a select group of employees, otherwise it would be treated as part of their remuneration package and hence taxable.
A word of warning: This tax break may not work in practice! It all depends on the interpretation of the word ‘facility’. Normally this would be taken to mean premises and/or equipment. Individuals may not qualify. However, some tax advisors believe that personal trainers are covered by the exemption, as long as you do not breach any of the qualifying conditions. At the end of the day, it probably boils down to how each individual tax office interprets the legislation.
The way it would hopefully works is that you would get your company to enter into a contract with the trainer (or the club that employs him/her). The trainer is not coaching anyone else but you, so his/her services are not generally available to the public at large (at least not whilst he/she is coaching you).
For the company it would be a trading expense as it is part of the cost of employing you (best to have a board minute authorising this). Therefore, it is deductible against corporation tax. It would hopefully also be a tax-free benefit, so you would pay no income tax or National Insurance contributions yourself. Effectively, the taxman would be subsidising your keep-fit programme. We must reiterate that it’s a bit of a grey area and may not work in practice.
In theory, it is not just personal trainers who are covered by this exemption. Tennis coaches, swimming instructors, and lessons in wind-surfing, skiing, horse-riding, etc may also qualify so long as they do not involve a vehicle or vessel (so sailing or water-skiing would be out).
However, you would need to be absolutely sure that there was no public access to the facilities whilst you were engaged in these activities, which may mean hiring the entire venue!
This tax break is very useful in that it applies not just to you but also to members of your family or household. So long as the sporting or recreational facilities are provided mainly for employees, their families are covered by the exemption too.
However, their use of the facilities should be incidental to your own. The facilities should not be provided solely for the benefit of your spouse or children (apart from a workplace creche which is tax-free) or you would be taxed on the benefit.
The use of bicycles rather than cars has been encouraged by the Government for many years now for environmental reasons and the tax system provides some good incentives. For example, an employer may lend or hire bicycles (plus any safety equipment) to employees without any taxable benefit arising provided that:
- They are available to all employees generally; and
- The employee uses the bicycle mainly for qualifying journeys
Qualifying journeys mean travelling between home and work or between different workplaces. They also include travel between the workplace and local amenities (no more than 10 miles away) such as shops and leisure centres during working hours.
It is not necessary to keep a record of qualifying journeys just to prove that the main use test is satisfied. In practice, the taxman will not challenge any scheme where an employer makes bicycles available to its staff unless there is very strong evidence to show that they are used mainly for non-qualifying journeys, such as regular participation in cycling rallies.
However, if you do work at home most of the time, it would be wise to keep a log showing that you use the bike to visit clients or suppliers from time to time. Otherwise, the taxman may get the idea that it is not really used for qualifying journeys at all and treat it as a taxable benefit.
It should be noted that the exemption does not apply to bicycles that are given to the employee rather than hired or lent. This would be a taxable benefit just like any other asset made available to an employee principally for their private use. Therefore, it must be a company bike, not yours, and should be shown as such in the accounting records.
As the bicycle belongs to your company, you can get the business to pay for maintenance costs too, such as pumps, lights, chains, locks, bells, oil, tyres, saddles, cleaning and repairs. You can also claim for bicycle clips. However, cycling shorts would not be allowed as these would also be required for decency (kind of) and not just protection.
One benefit of the employee owning the bike personally (rather than the company) is that tax-free mileage expenses of 20p per mile can be claimed. This is incredibly generous compared with the 45p rate for cars, given that you do not need to put petrol in a bicycle or pay for insurance and road tax.However, you probably wouldn’t make much money from the 20p rate. For one thing, you cannot claim for home-to-work travel (unless it is a temporary workplace) and it may be impractical to use the bike for business trips. Not many people would fancy riding more than about 10 miles on a bike, especially wearing a suit.