Salary sacrifice: Restricting the tax exemption for workplace canteens
Following the announcement at PBR 2009, HMRC has published draft legislation which will restrict the tax exemption for Workplace Canteens. It will affect the exemption for free or subsidised meals where an employee has an entitlement in conjunction with salary sacrifice or flexible benefits arrangements. An Explanatory Note is also available.
The new rules would take effect from 6 April 2011 and affect income tax and NIC.
Usually, meals provided for employees, including directors, in a canteen or on the employer’s premises are not taxable benefits provided the following conditions are met:
- the meal is on a reasonable scale;
- all employees, or all employees at a particular work location, may obtain a free or subsidised meal (or a voucher for one); and
- in the case of a hotel, catering or similar business, if free or subsidised meals are provided for employees in a restaurant or dining room when meals are being served to the public, part of the dining area must be designated for staff use only and the meals must be taken in that part.
The change will remove the tax exemption in circumstances where employees are in effect using a designated amount of their gross remuneration to fund the purchase of food and drink at work. It will apply to arrangements such as salary sacrifice and flexible benefits packages.