One of the options for organization of sports activities is to compensate the acquisition of gym membership for an employee.That is, the employee him/herself purchases a gym membership, and then the company compensates those expenses to him/her. How such transaction should be organized and recognized – in the following.
Organizational aspects
The benefits of compensation of the expenses gym membership for employees are that the company does not need to look for a gym or sports section for an employee and conclude a contract for their rent. The employee will do everything. The only one requirement from the company is money. The increased tax burden is among the disadvantages.
PIT, WT and USC
Such an organization of sports activities makes it possible to easily identify (personify) the person who went to the gym. He/she will be compensated for expenses after providing documents confirming the purchase of gym membership.
Therefore, the amount of compensated expenses for the purchase of gym membership will be an income for the employee of the company. Consequently, it is necessary to withhold the personal income tax (hereinafter - PIT) from it and the war tax (hereinafter -WT).
If the possibility of compensation for the expenses of gym membership is provided in the section “Remuneration of labor” of a collective or employment contract, then the amount of compensation will be considered as salary.
If the possibility of such compensation is not specified in the collective agreement or the employment contract (which is usually the case), then, probably, the tax authorities will classify such compensation for the purposes of taxation of the PIT and the WT as an additional benefit (paras.“г” of para.164.2.17 of the Tax Code of Ukraine, hereinafter - TCU).
If the compensation of the gym membership is:
- the salary, then in the form number 1DF it is reflected in the total amount of wages accrued to the employee for the reporting quarter with a sign of income “101”;
- the additional benefit, then in the form number 1DF it is recognized with a sign of income “126”.
The amount of WT will fall into sec. II of form No. 1DF in the line “The war tax”.
The compensation of the expenses of tickets to the gym will be paid by the employer in cash, and therefore in the tax base such income will fall without increasing the “natural” coefficient. That is, the employee will receive the amount of compensation minus PIT and WT.
For the purpose of collecting the unified social contribution (hereinafter - USC), the amount of compensation to employees for the cost of gym membership is salaries (para. 2.3.4 of the Guidelines on Wage Statistics, approved by the Order of the State Statistics Committee dated 13.01.2004, No. 5 (hereinafter - Guidelines No. 5), sub-para.5 of para.3 of sec. IV of the Guidelines on the procedure for accrual and payment of the unified contribution to the compulsory state social insurance, approved by the Order of the Ministry of Finance dated 20.04.2015, No. 449 (hereinafter - Guidelines No. 449). Therefore, it should be calculated the USC for such an amount.
Income tax
When an employee purchases gym membership and then the employer compensates for the expenses of such an acquisition, and then such expenses are reflected in the tax accounting the same as in the accounting. That is, they are recognized as expenses of the period in which they were actually incurred. At the same time, if:
- the provision of compensation is provided for in an employment contract (this is extremely rare but possible), then such expenses are recognized as economic and debited in the accounts 91 “General Production Expenses”, 92 “Administrative Expenses”, 93 “Sales Expenses”, depending on from which unit the employees are engaged in the gym;
- the provision of compensation of the cost of gym membership is not provided for in the employment contract, then such expenses are non-economic, and therefore they are written off to sub-account 949 “Other Operating Expenses”.
Today, high-income companies (income over UAH 20 million) are not obliged to adjust the financial result on non-economic expenses. Therefore, all expenses for compensation of the cost of gym membership will reduce the subject to the income tax.
VAT
The gym membership will be purchased by an individual-employee, and if the gym is a payer of the value added tax (hereinafter - VAT), the company will not be able to receive a tax invoice, drawn up for the company and registered in the URTI. Therefore, the tax credit is not discussed. Thus, there will be no any compensating liabilities in this case.
In addition, when the company compensates for the cost of purchasing a gym membership, it does not deal with supply. Therefore, VAT is not required to be paid.
