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HMRC internal manual

Employment Income Manual

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Particular benefits: canteen arrangements: how the restriction to the exemption works

Section 317 ITEPA 2003 as amended by section 60 FA 2010

With effect from 6 April 2011, there is an additional condition which must be satisfied in order for the exemption in section 317 ITEPA 2003 for employer-provided free and subsidised meals to apply. This condition is that the meals must not be provided in connection with relevant salary sacrifice or flexible remuneration arrangements (see EIM21676).

It is likely that many arrangements that do not satisfy this condition will be withdrawn before 6 April 2011. However, if any such arrangements continue to exist, then it will be necessary to calculate the amount of the benefit that is no longer covered by the exemption.

As a starting point, it is important to take account of the interaction between any earnings argument and the restriction to the exemption - see EIM21675. However, if earnings are not in point, you will need to identify the cost of the benefit of providing free or subsidised meals that is pursuant to the relevant salary sacrifice or flexible remuneration arrangements. It is this cost that will no longer be covered by the exemption and that will be taxable on the employee as a benefit.

Where an employer operates canteen salary sacrifice or flexible remuneration arrangements, these may run alongside a separate general subsidy that the employer provides for the catering facilities. In this context a general subsidy is one for which the amount contributed by the employer is not dependant on the existence or amount of salary sacrifice or flexible remuneration arrangements and which is reflected either directly or indirectly in the level of prices charged across the board in the canteen.

Where an employer provides a general subsidy at the same time as making payments (possibly also described as a subsidy) that are related to amounts derived from salary sacrifice or flexible remuneration arrangements, it is only the latter that will be affected by the restriction to the exemption. The exemption can continue to apply to the general subsidy and to any other free or subsidised workplace meals, provided of course that the other conditions are satisfied (see EIM21671),

There is no hard and fast rule about how to identify the cost of free or subsidised meals met by the employer. This will depend on the facts of any particular case. However, where the employer makes payments for canteen and meal services to an external provider, there is likely to be an accounting or tallying system that will enable the employer to identify the amounts that are connected to relevant salary sacrifice or flexible remuneration arrangements. These amounts will commonly be closely related to the amounts that employees have given up as salary or chosen to apply to meals in a flexible remuneration arrangement. They are likely to be separately identifiable from any general subsidy that the employer already pays to the canteen services provider in order to reduce canteen prices across the board. Accordingly, where:

  • all or an identifiable part of the amount (including VAT) paid by the employer to an external provider is closely related to amounts employees have given up as salary or chosen to apply to meals in a flexible remuneration arrangement, and
  • it appears that the amount that an employee sacrifices or applies to meals in a particular tax year is broadly related to the employee’s actual take-up of free or subsidised meals in that year,

you can accept that the amount of the benefit for each affected employee (being the VAT inclusive cost of providing those meals) is equivalent to the amount of salary sacrificed or to the amount of a flexible remuneration package that an employee has chosen to apply to meals.

Where the amount of salary sacrificed or remuneration package applied in return for meals does not broadly match the cost to the employer of providing the meals in that year, a more detailed calculation will be necessary.