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Hard to Swallow - Tax and the Working Lunch

Hard to Swallow - Tax and the Working Lunch
It is a very common practice for businesses to have a working lunch from time to time, and unfortunately this can cause problems with the legislation on benefits in kind.

 

Essentially, providing free or cheap meals for employees means they are getting a taxable benefit, unless they fall within one of the fairly narrow exemptions from tax on meals.

 

Meals provided free of charge or on a subsidised basis are only exempt from tax in the following circumstances:

 

?  The employees are away from their base on business - so that the meal is part of their “travel and subsistence”, or

 

?  The employee is given luncheon vouchers to the value of no more than 15p per day (I promise this is true), or

 

?  The employees are provided with a canteen meal in a canteen which is open to all employees, or

 

?  The meals are provided on the employer’s premises for all employees, or all employees are offered either a meal or a voucher for one

 

A “canteen” means an eating establishment which is only open to employees, so the local pub or café will not do - but it could be a canteen serving a number of units on an industrial estate, for example, as long as the general public are not admitted.

 

This extraordinarily nit-picking legislation can lead to real absurdity. The key point is that the exemption for meals on the employer’s premises only works if these are provided for all employees, or if they all either get a meal or a voucher for one.

 

In the last three “Employer Compliance Reviews” I have dealt with for clients, working lunches have caused problems in each case. In one case, because the working lunches only took place every other month, and consisted of a plate of sandwiches brought in from the local sandwich bar, I was able to agree with the inspector that the benefit was too trivial to tax, but in other cases the cost of the lunches has been taxed as a benefit, with a tax bill for the last six years.

 

Just to highlight how absurd the rules are, consider the following scenario:

 

Bill and Brenda set up a company with their friends Charles and Carol. In the early days, they are the only employees of the company, and they develop a practice of getting a takeaway meal in on Friday lunchtime, over which they discuss the week’s progress and agree the priorities for the following week.

 

This meal is exempt from tax, because it is provided on the company’s premises and all employees are able to enjoy it.

 

After a year or so, as the business becomes more profitable, they hire a secretary/receptionist. She is not invited to the weekly lunch, and this means that suddenly it becomes taxable on the four founders of the business, because it is no longer the case that all employees are eligible for the free lunch.

 

Fortunately for them, they consult a tax adviser, and he suggests that they provide the receptionist with a 15p luncheon voucher on Fridays. She is not exactly thrilled by this, but we now have a situation where all the employees of the company can either have a free meal on the premises, or have a voucher enabling them to obtain one, and that means that the meals for the four founder members are once again exempt from tax.

 

It may seem a bit unfair to only give the receptionist a 15p voucher, but if they give her a voucher for a more realistic figure, say £4, then unless she uses it in a “canteen” (see above for the definition), she will be taxable on a benefit in kind. If, for example, she goes to the local pub or café, because this is open to the public, the £4 voucher will be a taxable benefit.

 

I realise some readers may be thinking that I am just playing with the legislation to create an absurd situation - if you do think that, have a look at Example 3 in paragraph EIM21673 of HMRC’s Employment Income Manual, which uses almost identical facts to the ones quoted above!

 

James Bailey