No such thing as a tax-free lunch

You run a small consultancy company and treat your staff to lunch in the office once a week. You believe this to be a taxable benefit in kind because staff lunches are only exempt if they are provided in a workplace canteen. Is this correct?  Tax Partner, Christiaan Hansen clarifies.

Hidden exemption
Whilst it is true that free or subsidised meals at a workplace canteen are exempt from income tax and NI, that isn’t the full story. You would be forgiven for thinking that it was as simple as canteen equals yes and that everything else equals no, because on GOV.UK under “What’s exempt” it only mentions canteens and vouchers to use in a canteen.

However, there is another way to provide your employees with a tax-free meal.

The legislation states that the exemption applies to free or subsidised meals if they are provided:
• In a canteen;
or
• On the employer’s business premises.

So, lunches served in the office are also exempt. After all, it would be unfair if the exemption was restricted to businesses that could afford to pay for a canteen. There are several other conditions to meet to qualify for the exemption.

Conditions
If meals are served on your business premises, conditions A and B below must be met.

Condition A. The meals are provided on a reasonable scale. HMRC’s internal manual warns that this condition shouldn’t be applied too narrowly. A modest meal with a glass of wine is perfectly acceptable.

Condition B. That all employees or all of them at a particular location, e.g. a particular branch office, may obtain either a free or subsidised meal and/or a free or subsidised meal voucher or token.
It’s not necessary for all employees to receive the free or subsidised meals, just that they are offered them.

However, the exemption won’t apply if the meals are provided as part of salary sacrifice or flexible remuneration packages.

All employees
Meals that don’t meet the conditions for exemption, e.g. because they are not available to all employees, including directors, are taxable benefits.

EXAMPLE. ABC Ltd’s sales team has lunch together each Friday to discuss the results from the past week. The sales director orders lunch using a company credit card, and they eat together in a meeting room. The customer service team are working at the same location but are not invited to the meeting and are not offered lunch. The exemption does not apply because some staff are not able to obtain a free meal.

Special treatment
Although all staff need to be able to obtain a free meal for the exemption to apply, they don’t need to have the same meal or same standard of meal.

EXAMPLE. The directors of ABC Ltd have a buffet at their monthly board meeting which is provided by a catering company and costs £30 per person. The rest of the staff are given vouchers to get a sandwich and drink from a local shop. The supervisor orders and collects the meals so everyone can eat together in the staff kitchen. The vouchers are worth around £5 per person. The exemption applies because all the employees of the company either get a free lunch or meal vouchers.

IN SUMMARY
You don’t need to invest in a workplace canteen to give your staff a tax-free meal. The tax exemption also applies to free or subsidised meals provided on your business premises as long as all employees (including directors) can obtain a free meal or voucher.

If you would like to discuss this further with the JRW Hogg & Thorburn team please do get in touch.