Recreational and sporting facilities made available by an employer to employees are exempt from tax under Section 261 ITEPA 2003 (and Class 1A NIC) if the facilities provided are:
- available generally to all the employer’s employees;
- are not available to members of the public generally; and
- are used wholly or mainly by individuals whose right to use it is employment-related.
While this seems straightforward the contentious issue concerns the word 'facilities', which is not defined in the legislation and which HMRC interprets as only covering tangible facilities such as a gym and/or gym equipment.
We are currently assisting an employer who has made group fitness sessions available to its employees for several years, without reporting this as a chargeable benefit. These sessions include a range of physical activities which are led by a personal trainer who also provides all required equipment. The problematic point is that the employer does not have space on their premises to hold these sessions, and so they take place in a park close to the employer’s offices.
HMRC, applying their interpretation of the word facilities, are contending that the exemption does not apply to this arrangement because the fitness sessions are not 'facilities'.
We, on the other hand, are arguing that the dictionary definition of 'facility' (pl facilities) is a building, service, or piece of equipment provided for a purpose.
Applying the ordinary meaning of the word, nothing should therefore stop the fitness sessions and equipment made available by the employer from being described as sporting or recreational facilities.
This raises some important questions. For example, why are HMRC seeking to deny the use of the exemption when the fitness sessions made available by the employer serve the same function and purpose to those that would be served by an in-house gym? And why, when the effects of inactive lifestyles are viewed as so damaging, are HMRC applying this exemption so narrowly? This hardly encourages well-meaning employers to support employees with being active and squeezing physical activity into their working day.
This case again highlights how complex benefit in kind taxation can be. Employers providing similar benefits need to be careful that they don’t lose pounds if HMRC successfully challenges their use of the exemption.