Staff canteens
The measure
Where free or subsidised meals are provided in a canteen or otherwise on an employer's premises, this benefit is currently exempt from tax and National Insurance. The exemption will now be disapplied where such benefit is provided in conjunction with a salary sacrifice or flexible benefits arrangement. Instead, in such circumstances, the exemption will give way to the normal rules for taxing employer provided benefits, attracting tax and employer's class 1A National Insurance contributions on the benefit in kind provided.
Who will be affected?
Employers providing and employees receiving the benefit of free or subsidised meals, but only where this is provided 'in conjunction with' salary sacrifice, where the value of the benefit provided is 'commensurate with' the salary given up.
The benefit of free or subsidised meals continues to be exempt from tax and National Insurance contributions where provided as a perk, i.e. not in conjunction with a salary sacrifice or flexible benefits scheme, and made available to all employees.
HMRC has stated that where arrangements 'apportion income to meals at work', it maintains its view that this constitutes earnings, which has always been the case. HMRC has previously publicised its view that this can apply where funds are placed at the disposal of employees e.g. using an accounting system and/or Smart card.
When?
The restriction on the existing exemption will come into effect from 6 April 2011.
This is the second time we have seen legislation negating the effect of salary sacrifice arrangements (the first occasion was in relation to the definition of income under the pensions anti-forestalling legislation). It appears to be a measured reaction to an arrangement that exploits an exemption in a way that, in HMRC's view, was never intended. This is preferable to a 'blanket measure' affecting other salary sacrifice arrangements, and suggests HMRC recognise the important role of other flexible benefits and salary sacrifice arrangements in facilitating flexible working and reward.
The meaning of 'in conjunction with' and 'commensurate with' has yet to be determined. Subject to this, where the exemption gives way to the normal rules on the taxation of benefits, the amount of the taxable benefit will be the cost of providing the benefit to the person(s) providing the benefit, not the amount of salary sacrificed. This recognises the validity of salary sacrifice for tax purposes. However, employers wishing to provide such a benefit using salary sacrifice will now find themselves with a P11D reporting obligation and the task of having to calculate the cost of provision in respect of meals provided, in order to determine the taxable benefits arising to each employee taking part.
Companies will welcome the news that HMRC has given until 6 April 2011 for employers and employees to adjust to the new rules.
