When is Lunch Tax Deductible?

Newsletter issue - May 08.

Free or subsidised meals provided to staff in a works canteen are tax and NI free as long as the meals are available to all staff. The company does not necessarily have to have its own canteen, but the food must normally be provided on the business premises. The local pub cannot be designated as a staff canteen just for Friday lunchtime. If some company sites have a canteen but others do not, the subsidised food will still be tax-free as long as any employee can eat in the canteen if they happen to be on site.

Sandwiches, drinks and tea and coffee are all covered by this tax exemption if the refreshments provided are on a reasonable scale. For instance free fruit and snacks would be reasonable, but free champagne would not.

Working lunches for staff or directors are not a taxable benefit as long as the employees who are not involved also have the right to free food generally. It does not matter that the directors' food is not exactly the same as the staff canteen grub, as long as it is comparable. The Taxman would take a dim view of directors sitting down to a three-course meal with wine and cigars while the staff have tinned soup and rolls.

Example
All professional staff are required to attend monthly lunch-time training sessions where free sandwiches are provided. The company's support staff do not attend the training meetings. If the company provides free sandwiches for all the staff including the support workers, the free food is not a taxable benefit. If the professional staff eat all the sandwiches and leave nothing for the admin department a tax charge will arise.

In addition, when your employees are temporarily away from their normal base the employer can reimburse the cost of a reasonable meal without incurring further tax or NI liabilities.

Where food is provided to staff in any of the above circumstances the cost is tax deductible for the employer and any VAT charged on prepared food, such as sandwiches can be reclaimed. What you must avoid is any element of entertaining being wrapped up with the provision of the food. Meals provided to customers or potential customers will almost always be classed as entertaining, so the cost cannot be deducted for tax purposes, and the VAT cannot be recovered.