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HMRC internal manual

Employment Income Manual

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Particular benefits: canteen arrangements: no exemption from 6 April 2011 in cases of salary sacrifice or flexible remuneration

Section 317 ITEPA 2003 as amended by section 60 FA 2010

Section 317 ITEPA provides an exemption from income tax for free or subsidised meals that an employer provides for an employee as long as the meals are provided in a canteen or on the employer’s premises and a number of conditions are met (see EIM21671). Section 60 FA 2010 inserts an additional condition into section 317, which applies from 6 April 2011 onwards.

The condition is that the provision of the meals is not pursuant to:

  • relevant salary sacrifice arrangements, or
  • relevant flexible remuneration arrangements.

This means that from 6 April 2011 the exemption does not apply to meals which are provided under relevant salary sacrifice or relevant flexible remuneration arrangements.

Both these terms are defined in section 317(5A).

  • “Relevant salary sacrifice arrangements” are arrangements under which the employee gives up the right to receive an amount that would otherwise have been taxable as employment income in return for the provision of free or subsidised meals.
  • “Relevant flexible remuneration arrangements” are arrangements 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.

“Relevant flexible remuneration arrangements” includes remuneration packages described as flexible benefits or “flexben” arrangements that allow individual employees some choice in the overall composition of their own remuneration package, typically up to a set maximum value, often called “reference pay” or “notional pay.”

Time when salary sacrifice or flexible remuneration arrangements entered into

The restriction to the exemption applies with effect from 6 April 2011 but the restriction applies to any relevant salary sacrifice or flexible remuneration arrangements, regardless of when they were entered into. This means that from 6 April 2011 the restriction in the exemption applies to existing arrangements as well as arrangements that take effect on or after 6 April 2011.

In addition, the exemption is restricted where, before starting a new employment, an employee agrees to take part of the remuneration package in the form of free or subsidised meals, rather than as salary or in the form of a different non-cash benefit or other description of employment income that the employee could have agreed to receive instead.

Remuneration structures that do not prevent the exemption from applying

  • The restriction to the exemption applies where the employee has some element of choice about whether or not to relinquish salary or to enter into flexible remuneration arrangements. The restriction does not apply where an employer unilaterally sets or alters the remuneration structure. This means there should be no scope for individual employees to opt in or opt out of having the availability of free or subsidised meals taken into account in determining the composition or value of their overall remuneration package.
  • Similarly, the restriction does not apply where as a result of collective bargaining with trade unions or staff associations pay rates for employees as a whole take account of the provision of free or subsidised meal facilities. As above, there should be no scope for individual employees to alter the make up of their remuneration package by opting in or out of the availability of such provision.
  • Employers that operate from more than one site may have different pay structures at different sites. This may be as a consequence of regional pay variations but may also reflect other factors such as the availability of subsidised meal facilities. It is therefore possible that an employee’s cash salary may be reduced on moving from one location to another location. Where the new location has subsidised meal facilities and the former location had none, this could raise the question of whether or not there are relevant salary sacrifice or flexible remuneration arrangements. As long as any amendment in the composition of the remuneration package is simply a consequence of the move from one location to another and is not the reason for such a move, the exemption in section 317 will not be prevented from applying. See EIM21679 for examples.

See EIM21677 for details of how the restriction to the exemption works in practice.