In the modern corporate landscape, employee well-being has taken centre stage as a pivotal factor in driving productivity, engagement, and overall success.
As companies seek innovative ways to support their team's physical and mental health, the question arises: Can your limited company cover gym memberships for directors and staff?
Providing a benefit in kind to Directors or staff is a great way to make them feel valued and appreciated. A limited company can provide a benefit in kind such as gym membership, but it should be offered to staff fairly and there is an implication of benefit in kind tax.
Example Costs
Lets use an example that the gym membership is going to cost £3600 per annum for 1 Director and 2 members of staff (This is the entire team of the company). Assuming the limited company suffers corporation tax at 25%, the cost and tax saving to the limited company would be:
Gym membership per annum: £3600 cost (based on a cost of £1200 per annum pe team member)
Corporation tax saving (at 25%): -£900 tax saving
National insurance on the benefit in kind: Approximately £524 cost
This means the actual cost to the company would be:
£3600Gym membership
£524National insurance on the benefit in kind
-£900Corporation tax saving (using 25% corporation tax rate)
£3224.00 Total cost to the company
Would Directors & staff suffer tax on the gym membership?
The gym membership would be a benefit in kind. A benefit in kind is where Directors & staff enjoy the value of something without being given the actual cash. In the example above we have assumed all Directors and staff are basic rate taxpayers:
The saving on the cost of the gym membership, as it is being provided by the company would be £1200 per person.
Based on a 20% basic rate taxpayer, the tax on the benefit in kind would be £240 each
Therefore the overall money saved by the Director or staff member would be £960
(£1200 gym membership saving - £240 tax = £960 overall saving).
What if all team members are Director/Shareholders, would it be better to take a dividend and pay for the gym membership directly?
Using the example above, if all 3 members of the team are Director/shareholders and opt to take the £1200 as a dividend:
Profits need to be: £3600
Corporation tax suffered on £3600 profit (assuming corporation tax is at 25%): £900
The available dividend then becomes: £2700 being £900 per Director.
The cost to the company is now £3600 (being £900 corporation tax and £2700 dividend)
What would the cost of the extra dividend be to each Director/Shareholder?
Dividend of: £900 each
Dividend tax assuming basic rate taxpayer: £78.75
The net dividend would become: £821.25
In this example the Director/shareholder would have £821.25 to put towards a gym membership of £1200
Do you need some extra guidance on this?
In a world where the lines between work and personal life often blur, prioritising employee well-being is more crucial than ever. By considering gym membership coverage for directors and staff within your limited company, you're not just offering a perk – you're making a statement about your commitment to fostering a healthy, balanced, and motivated workforce.
Please get in touch and share your situation with us.