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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Particular benefits: canteen arrangements: when do they count as earnings?

Section 317 ITEPA 2003

HMRC has become aware of certain commercially marketed arrangements that do not fall within the Section 317 exemption. The details of the schemes vary but some of the following features may be seen:

  • the employer makes money or value available to participating employees. This is used by employees to purchase food and drink in the workplace
  • each participating employee has an account or “purse” in which the money or value is held
  • the account or purse may exist in the accounting system that supports the canteen or on smart cards held by the employees
  • money or value is credited to an account or “purse” on a periodic basis, typically weekly or monthly
  • Employees may add money or value to the account from their own taxed income. These “top ups” are used to purchase food and drinks when amounts credited by the employer are exhausted
  • Money or value can be used to obtain food and drinks from a canteen or from a range of restaurants, coffee shops and vending machines in the workplace. The retail outlets link into a common accounting/tracking system
  • The accounting/ tracking system imposes monetary limits on each employee’s purchases based on the amount allocated to the account or “purse”.
  • The read out or front end of the system typically informs the employees how much is available to them at any time and this will either be specified in monetary value or specified in terms that are easily convertible to monetary value.
  • Tills and vending machines in the workplace require the provision of a card or the entry of a PIN to enable employees to access and draw on funds in their accounts
  • Arrangements may be linked to salary sacrifice. Employers deposit matching amounts into the canteen account or purse. Once funds are exhausted, “top-ups” may be used to fund consumption until the next employer deposit is made



These schemes are not within the Section 317 exemption. Canteen arrangements that provide employees with money or value do not provide “…free or subsidised meals…” within the meaning the meaning of Section 317. These arrangements simply place funds at the disposal of participating employees. They can spend the funds as they like, within the limitations they have agreed to. The provision of money or value is taxable as earnings within the definition provided by Section 62,

Tax and NICs consequences

Employers should treat amounts credited to canteen accounts as earnings for the purposes of PAYE and Class 1 NICs.

Different types of electronic system

In some cases the electronic account may be described as a tracking or tallying system and it may be argued that this means that it does not amount to the putting of value at the employee’s disposal. This is simply a presentational difference and such arguments should not be accepted.

There is just one exception to this position and that is where there is no link or read across to any pool of value and where the electronic system is only used to control employees’ access to an employer-provided canteen discount or subsidy on any given day.

For example, an employer subsidises the cost of canteen meals by 50% but wishes to prevent employees from abusing the subsidy and therefore introduces a card system that authorises employees to buy a subsidised meal once - and once only - on any working day. There is no scope whatsoever - either within the electronic card itself or in any arrangements that underpin the card - for any “unused” meals or value to be saved up or rolled forward to cover future canteen visits. In other words, if the employee has no canteen meal on a particular day, the authority for them to use the canteen and access the subsidy on that particular day completely evaporates and there is no additional or substitute entitlement available or rolled forward.

In these circumstances, you may accept that the use of an electronic system does not rank as the provision of earnings.

Interaction between earnings and restriction to exemption introduced by section 60 FA 2010

With effect from 6 April 2011, the section 317 exemption is prevented from applying to meals which are provided as part of salary sacrifice or flexible remuneration arrangements. This change in the terms of the exemption makes no difference to arrangements already taxable under the preceding analysis. Where the employee is credited with funds or value that rank as earnings, this will take priority. However, if the employee participates in salary sacrifice or a flexible remuneration arrangement in circumstances where what is provided in return does not rank as earnings, the application of the exemption in section 317 will be restricted with effect from 6 April 2011. For further information see EIM21676 onwards.