The provision of food and drink to an employee by their employer is a wonderful thing to do. It is known to promote teamwork, loyalty, a sense of belonging, and increasing productivity. At face value, it looks like a simple act of kindness. However, unless it is done correctly, it can cause tax and national insurance compliance issues for the employer.
There are a number of scenarios when an employer can legitimately pay for the food costs of their employees. One of them being ‘Subsistence’ and ‘Client Meetings’ when traveling. In this article, we will focus on providing food to staff via an onsite canteen.
When providing food to your employees via an onsite canteen, it is necessary to take note of:
- How much – The value and costs of the meals.
- Where – Is the meal taken on or off the regular business site?
- Who – is it open to all employees or just some of your staff?
- Process – How has it been paid for? Is it through employee accounts or vouchers?
All of the four above considerations will determine if the food you provide to your employees can be exempted from tax and National Insurance Contributions.
Am I Exempt?
If you provide all your employees free or subsidised meals of a reasonable value at a workplace canteen, you’re exempt from tax and NIC charges relating to onsite canteens. Using vouchers that cover the cost of buying these meals counts as a provided meal.
Canteens – Section 317 ITEPA
A canteen is a place in your business where meals are served to the staff. Eateries, cafes, public houses, or similar enterprises that serve food and drinks to the public are not considered canteens by HMRC.
To ensure you do not pay tax on provisions of meals in a canteen, employers must meet these conditions:
- Have a within ‘reasonable scale’ meal. “Reasonable scale” is a confusingly arbitrary HMRC phrase that is not easy to interpret. It is best to treat that provision with care, because surpassing the HMRC ‘reasonable scale’, loses the exemption. For example, a glass of wine with a modest meal is reasonable. Sorry to be the bearer of bad news but the provision of an elaborate menu, fine wines, and cigars are a little overboard!
- All employees, or all employees at a particular work location, may obtain a free or subsidised meal (or a voucher for one). Simply providing food to a single section of the workforce, such as Directors, does not qualify for an exemption.
- Meals are not provided as part of salary sacrifice or flexible remuneration arrangements.
For the Section 317 ITEPA exemption to apply, you also need to consider the following:
- The exemption applies to meals provided in any canteen. It does not necessarily have to be on the employer’s premises or restricted to the employees of one employer.
- Employees do not have to get the same level of subsidy for their meals. The exemption applies, provided there is a free meal for all.
- A meal provided to an employee by a third party, if the employee is working at the premises of the third party, is subject to an exemption. For example, a contract worker employed by X, who works on-site at employer Y, is exempt from charges if he enjoys a meal in a canteen provided by employer Y for its employees.
- Provided meals do not need to have a schedule or frequency. The chance for all staff, at some time or other, to get a free or subsidised meal is enough to meet the terms of the exemption.
- Meal vouchers get an exemption to the extent that those vouchers are tickets or tokens used to obtain meals on the employer’s business premises or in a canteen open to the employees. It does not apply to meal vouchers used to get meals elsewhere.
I Am Not Exempt. What Next?
If you are not exempt, you must report meals and vouchers to HMRC, settling any tax and national insurance due. Free or subsidised meals that are not exempt are:
- Provided off-site but not at a canteen, for example at a restaurant or pub.
- Lack a reasonable scale, like elaborate meals with fine wines.
- Not available to all staff e.g., meals for directors and company secretaries only.
- Provided under salary sacrifice – an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit. In this case, a meal. The amount an employee forgoes is dependent on what has been agreed upon in the contract between the employer and the employee.
- Provided under ‘flexible benefit’ plans – an agreement that the employee is to be provided with a free or subsidised meal, rather than receive benefits within their allowance. An employee will have the choice to retain their stipulated salary and simply vary the levels of benefits within their allowance. Employees can also choose to modify their salary by taking fewer or more benefits.
We understand this can be a little confusing. If you need support on this topic, speak to us about reporting any pecuniary liabilities for Class 1, Class 1A as well as Class 1B national insurance.
- Cash payments or vouchers that can be redeemed either for meals or cash must be included in gross pay when calculating earnings for Class 1 national insurance contributions (NICs) if the employee is permanently employed.
- The full cost of all meal vouchers is to be included as earnings to calculate NICs liability.
- If your company has commercially marketed arrangements that do not fall within an exemption, the employer should treat amounts credited to canteen accounts as earnings for PAYE and Class 1 NIC. More details on this are on the HMRC website.
Vouchers that can be exchanged for food or cash, cash allowances for meals, and top-up payments to an employee’s account for workplace food and drink using a card or PIN system count, as earnings. These costs must be added to employees’ earnings from which the employer will deduct and pay PAYE tax and Class 1 national insurance payroll.
Be sure to read our guide on claiming food as a business expense, to simplify things further. You can also reach out to us for first-rate clarification and assistance on onsite canteens and food voucher taxation.