Saving Money With the Eat and Drink at Work Scheme
Subsidised meals at work are an excellent employee benefit. Subsidised or free meals provided by employers are actually exempt from tax, and can turn out to be a cost effective employee benefit.
A Tax Deductible LunchMany large and some small businesses know the value of providing subsidised meals for their employees. But not all companies that provide meals are taking advantage of the tax free benefits. Subsidised employee meals are exempt from tax and National Insurance under the Income Tax (Earning and Pensions) Act 2003. As long as the meals are available on the employment premises and are available to all staff this tax exemption rule will apply. There can also be cost saving benefits for employees who choose salary sacrifice to buy their meals.
Employee Savings Using Salary SacrificeEating and drinking at work using a staff canteen can actually bring employees extra savings. Salary sacrifice means that employees can have a certain amount of their money deducted from their salary. The percentage that is deducted is entirely up to the employee and can then be used to purchase subsidised food and drink at work. Money is deducted from the gross salary, meaning before tax and National Insurance contributions are taken. This means that employees are paying less tax and NI on their net salary.
Rules for Tax Free Eating and Drinking at WorkThere are certain rules that apply to the tax free eat and drink at work schemes. Eligibility for tax and NI savings will include:
- Canteens are not necessary but food and drink must be provided on business premises
- Local restaurants cannot be designated as staff canteens
- Subsidised food and drink must be available to all employees even if they work on different premises
- Free working lunches for staff will not be tax free unless all employees have the same right to free food
- Sandwiches, tea, coffee and vending machine consumables can all be regarded as part of the scheme
- There should not be one type of meal available for directors and another for staff
- Food provided to customers or clients will be classed as entertainment and is not exempt from tax
Big Savings by Eating and Drinking at WorkBig savings can be made according to companies who are already using eat and drink schemes at work. Organisations that implement these schemes into workplaces claim that a standard tax paying employee can save around £429 per year. Employees who pay a higher tax rate can save approximately £533 per year. These savings are based on employees who spend an average of £5 per day on drinks, snacks and food at work. This is not an insignificant amount of money and can be seen as a very cost effective employee benefit.
Who Runs Eat and Drink at Work Schemes?There are a number of organisations that can help implement these schemes within companies. One organisation called You At Work have recently helped the Nestle company set up an eat and drink at work scheme. Forecasted financial savings for total employees at Nestle are £80,000 in NI and a staggering £325,000 in tax. These savings are an approximate forecast for the first three years of Nestle using the eat at work scheme.
Paying For Food and Drink at WorkThere are a number of different ways that employees can pay for their subsidised meals at work. One of the payment methods is a pre-payment credit card. The amount of salary sacrificed will be transferred to the credit card, which can then be used to purchase food and drink. Employees can check their spending and balance online and even top up their balance and make payments. This pre-payment card can be used in staff restaurants, coffee shops, canteens and vending machines.
Small Businesses and the Eat at Work SchemesMany large businesses already have some form of subsidised canteen or staff restaurant and implementing this scheme would not be a problem. Small businesses will have to consider whether or not this scheme would be worthwhile. The tax and NI exemption would still apply regardless of the amount of employees. But companies who do not have canteens onsite due to minimal staff numbers will have to carefully consider whether setting up a canteen would be cost effective.
The eat and drink at work scheme can bring in large savings for employees, especially for companies who already have canteens. Companies can use this scheme as another form of employee benefit that workers should be more than happy about. With employee benefits in the workplace disappearing this scheme could be a winner for companies already supplying food and drink to employees.