Sarah Laing looks at some tax-efficient incentives that employers can use to help keep employees fit for work.
In the current Covid-19 climate, it is more important than ever to stay as fit and healthy as possible.
Although exercise has been restricted mainly to outside activities such as walking and cycling over the last few months, indoor excise is becoming more permissible; and along with it, increased opportunity for employers to use tax breaks and exemptions to help promote health and fitness at work.
Gym facilities and memberships
In-house gym facilities may be offered to employees at a convenient location to fit in around work and there will be no tax or National Insurance contributions (NICs) liability arising if the following conditions are satisfied:
- the facilities must be available for use by all employees, but not to the general public;
- they must be used mainly by employees, former employees or members of employees’ families and households (employees of any companies grouped together to provide the facilities also count);
- the facilities must not be located in a private home, holiday or other overnight accommodation (including any associated sporting facilities); and
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they must not involve use of a mechanically propelled vehicle (including road vehicles, boats and aircraft).
For employers who cannot practically provide in-house gym facilities, it may be possible to negotiate favourable membership rates with a local gym or leisure centre. Whilst this may lead to a tax liability for employees, the preferential rate can often be up to 20%-30% cheaper than the normal price, so this is still an attractive offer for employees.
Depending on how the cost of the gym membership is funded, the fees will either be taxed as earnings or as a taxable benefit-in-kind. For example, if an employer gives the employee additional salary to pay for their gym membership, the money is taxed as earnings through PAYE. If the employer pays the gym membership direct, a taxable benefit-in-kind arises on the employee and should be reported to HMRC on form P11D, or through the payroll.
Where an employer pays for a gym membership and the employee contributes towards the cost from their net pay (after tax and NICs), this is referred to as ‘making good’. The amount of the benefit (i.e. the cost of gym membership) is reduced by the amount of the contribution.
Cycle to work scheme
The cycle to work scheme is a government initiative designed to encourage employees to use a bike as their mode of transportation to commute to and from their workplace. The scheme has become increasingly popular as many people continue to avoid using public transport where possible.
The scheme works by an employer essentially buying a bike for their employee and then the employee ‘hires’ the bike bought by their employer over the course of a year using salary sacrifice. Broadly, if the scheme meets the relevant criteria, it can benefit from a tax exemption. Since a portion of the employee’s salary is foregone, the employee pays less tax and NICs, and the employer is able to save on employers NICs at 13.8% on the amount sacrificed. At the end of the 12-month ‘hire’ period, the employee then buys the bike from their employer for its HMRC-approved fair market value (FMV).
Full details of the scheme, including eligibility criteria and how employers can register, can be found in the government publication ‘Cycle to Work Scheme Guidance for Employers’ (tinyurl.com/DFT-CTWG).
As fitness and health issues become increasingly popular, anything an employer can do to help is likely to be most welcomed by employees.
Practical tip
There are several tax and NICs exemptions relating to certain preventative health issues, which employers may find helpful. For example, employers can fund one tax-free (and NICs-free) health-screening assessment and/or one medical check-up per year per employee. Subject to an annual cap of £500 per employee, employer expenditure on medical treatments recommended by employer-arranged occupational health services may also be exempt for tax and NICs.
