Commentary on Sections Example 3 £150(Pe) – £50(E) = £100 Section 261: Exemption of recreational benefits
1063.Subsection (1) provides for the exemption from income tax. Subsection (2) makes it clear that both the use of the facilities and the right or opportunity to use them are within the exemption. The availability and use of the facilities must meet the conditions set out in subsections (3) to (5) for the benefit to be exempt.
1064.The simplest case where this exemption can apply is that of a single employer. If all the conditions in subsections (3) to (5) are met, the exemption applies. In that case “the employer in question”, (subsection (3)), is the single employer.
1065.Two or more employers may provide facilities jointly. In such a case each employer is looked at separately. The condition in subsection (3) requires that the facilities must be available generally to the employees of that employer, the “employer in question”. If one employer restricts the availability to certain employees, none of the employees of that employer can claim the exemption.
1066.The use of the words “members of the public generally” in subsection (4), is to indicate that the exemption cannot apply to facilities available for public use, whether these are public facilities or in-house facilities made available to the “public generally”. However, in-house facilities made available for use to a particular sector of “the public”, meaning people other than employees, such as a local school allowed to have swimming lessons, does not prevent the exemption from applying, provided the condition in subsection (5) is met.
1067.The test at subsection (5) looks at actual use of the facilities rather than the people to whom they are made available. There are several different things taken into account here. To simplify this, subsection (5) uses the expression “employment-related” and subsection (6) then defines what that means.
1068.Under subsections (6) and (7), use by former employees and their families is included, provided the employer has made the facilities available generally to the employees.
1069.The words in brackets in subsection (5) indicate that where there is provision for the employees of more than one employer, all users must be considered. If an employer has restricted use, so that the test at subsection (5) fails for that employer, it does not prevent the use test being satisfied for other employers. Provided the restricting employer has only small numbers actually using the facilities, the “mainly” test is satisfied. This can best be explained using an example.
1070.Example. Suppose a facility is:
	available to a few of A’s employees; and
	available to all of B’s employees; but
	not available to the public generally.
The exemption does not apply to A’s employees because the condition in subsection (3) is not satisfied. Subsection (3) is satisfied for B’s employees.
The opportunity to use the facilities may be employment-related for B’s employees but not for A’s. If B’s employees who use the facilities substantially outnumber the employees of A, who use them, they will be used mainly by employees whose opportunity to use them is employment-related. The condition in subsection (5) is then satisfied for B’s employees, and the exemption will apply for them.
1071.An employer may provide a non-cash voucher, which the employee must present to use the facilities provided. If the facilities meet the conditions set out, and the voucher can only be used for that purpose, section 266(3) provides that there is no liability to income tax on the cost of provision of the voucher.