Subsidised Meals for Employees – Draft legislation preventing use of salary sacrificeThursday, February 11th, 2010
Section 317 of the Income Tax (Earnings and Pensions) Act 2003 provides a tax exemption for the provision of free or subsidised meals provided for employees in a canteen or on the employer’s business premises. The 2009 Pre-Budget Report announced that the legislation would be changed to prevent this exemption being used in conjunction with salary sacrifice schemes or flexible benefits schemes. The restriction will apply from April 2011.
The Government’s objection to the subsidy exemption being used in conjunction with these schemes is that the exemption is intended to benefit all employees, not to provide an additional tax and NICs advantage for those employees who purchase meals out of their gross pay.
HMRC has published in draft the changes to legislation that will give effect to this restriction. Currently, use of the exemption depends on the following conditions being met:
- the meals are provided on a reasonable scale,
- all the employer’s employees or all of them at a particular location may obtain a free or subsidised meal and/or a
free or subsidised meal voucher or token, and,
- if the meals are provided in the restaurant or dining room of a hotel or a catering or similar business at a time when meals are being served to the public, part of the restaurant or dining room is designated for the use of employees only, and the meals are taken in that part.The new restriction will add a fourth condition, namely
- the provision is not pursuant to
- “relevant salary sacrifice arrangements”, or
- “relevant flexible remuneration arrangements”.
These terms are defined as follows:
- “relevant salary sacrifice arrangements” are arrangements (whenever made) under which the employee gives up the right to receive an amount of general earnings or specific employment income in return for the provision of free or subsidised meals, and
- “relevant flexible remuneration arrangements” are arrangements (whenever made) under which the employee and employer agree that the employee is to be provided with free or subsidised meals rather than receive some other description of employment income.
The reference to “whenever made” means that the restriction does not apply just to new arrangements made on or after 6 April 2011. Rather, it applies to existing arrangements as well. Therefore, if free or subsidised meals are provided under the terms of a salary sacrifice scheme or a flexible benefits scheme, irrespective of whether the arrangements are made before or after April 2011, the exemption will not apply from 6 April 2011 and the benefit must be reported as a taxable benefit on form P11D. The amount reported will be the cost to the employer of subsidising the meals for the particular employees.
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