Revenue clamps down on salary sacrifice on-site meals

HM Revenue & Customs (HMRC) is clamping down on schemes that allow staff to sacrifice salary in exchange for meals provided at their place of work, saving them tax and national insurance (NI) and employers NI.

It has sent out letters to various employers and their tax advisers warning them that the schemes may not be offering employees an effective salary sacrifice because participating staff members retain too much control over how the tax-free cash is being spent.

It is thought that HMRC is responding to increased interest among employers in setting up schemes whereby employees offer staff the chance to sacrifice cash on to a card which is then used to purchase food at on-site canteens.

The letter has already forced KPMG to back away from offering the benefit, and other employers are likely to follow.

Sara Turner, reward manager at KPMG, said: “We wanted to launch [salary sacrifice on staff canteens] in 2008, but have since changed our mind because HMRC has started looking more closely at the scheme.”

In the letters from HMRC, Joanne Ellis, employment issues manager at the Large Business Service for the Strategic Response Unit, says: “If the employee retains control over the money he or she intended to sacrifice, the money is earnings of the employee and remains liable to tax and Class 1 NI.”

She adds that if the firm meets liability for food purchased in the canteen and provides the employee with credit for refreshment purchases, again the money is taxable and not part of an effective salary sacrifice.

Inez Anderson, tax director at Smith & Williamson, said: “HMRC is saying that if you sacrifice part of your salary you have to give up your entitlement to it.”

An HMRC spokesman told Employee Benefits that it has “seen a number of cases involving arrangements that purport to combine salary sacrifice with the exemption for subsidised meals”. He added: “HMRC does not accept that the exemption for subsidised meals is necessarily relevant.”