HMRC restricts the tax exemption for workplace canteens - Mazars - United Kingdom
HMRC restricts the tax exemption for workplace canteens
Currently no tax charge arises on the provision of meals for directors or employees provided in a canteen or on the employers premises when certain conditions are met. Remuneration arrangements involving salary sacrifice or flexible benefits schemes have developed to take advantage of the exemption and allow employees to purchase meals from gross rather than net pay. These arrangements provide employees and employers alike with a tax and NI advantage.
Following the announcement in the Pre-Budget Report, and amid concerns that the arrangements were not fair to the majority of employees who have to purchase meals out of net pay, the Government has drafted legislation to remove the tax exemption for free or subsidised meals where they are provided in conjunction with a salary sacrifice or flexible benefits arrangement.
The restriction will have effect from 6 April 2011 and will apply equally to existing arrangements and those entered into after this date. From 6 April 2011 employers with these arrangements in place will be liable to Class 1A NI on the cost of providing or subsidising employees meals and employees will be liable to income tax on this cost.
Employers considering introducing this should retreat from offering the benefit and those with existing arrangements should consider withdrawing them from 6 April 2011.
However, salary sacrifice is still effective for tax and NI purposes and given the increases in NI also effective from 6 April 2011 it remains an attractive proposition. Remuneration packages should continue to be reviewed to see what items can be included.
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Nick Bustin
Senior Tax Manager
+44 (0)20 7063 4277
Alastair Kendrick
Employment Tax Services
+44 (0)20 7063 4438
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