Is the pub lunch an employee benefit?

So here we are at what is traditionally the hospitality / invitation part of the year. It’s either you inviting staff, suppliers or customers out for a lunch, or it’s the other way round. We all know the phrase “There is no such thing as a free lunch” but when does the invitation become a tax burden?

The distinction between whether a “pub lunch” is treated as subsistence or as an employee benefit (and thus reportable on a P11D or through payrolling of benefits) for UK tax purposes hinges on the context in which the expense is incurred and its primary purpose. 

Here’s how you can determine the correct classification:

1. Subsistence:

A pub lunch will count as subsistence if:

• Business Purpose: The meal is incurred as part of the employee’s duties and is directly necessary for their work. For example:
  • The employee is traveling for work and has to purchase a meal because they are away from their usual place of work.
  • The lunch occurs as part of a work-related meeting where the primary purpose is business.
• Temporary Workplace: Under HMRC rules, it’s OK if the expense arises while the employee is at a temporary workplace and not their usual place of work.
• Wholly, Exclusively, and Necessarily for Work: The cost is incidental and a result of carrying out work duties, such as attending a training day or client meeting outside the regular office.

Tax Treatment:

• These expenses are not taxable as a benefit in kind.
• They are either reimbursed directly by the employer or claimed as a tax-deductible expense.

2. Employee Benefit:

A pub lunch will be treated as an employee benefit if:

• Non-Business Purpose: The meal is provided as a perk or reward, and it is not directly related to the employee’s performance of their duties. For example:
  • Team lunches, Friday pub lunches, or staff social events that are not essential for work.
  • A free lunch is routinely provided to staff in the workplace without it being a business necessity.

Tax Treatment:

• These are considered a benefit in kind and must be reported via P11D or through payrolling benefits.
• They may attract tax and National Insurance Contributions (NICs) unless an exemption applies.

Exemptions:

Certain circumstances exempt meals from being taxable benefits, even if provided regularly, such as:

• Staff Canteen: Meals provided in an on-site canteen available to all employees may be exempt. I have seen many agencies with Pool Tables or Arcade Machines, but I’m not sure I have experienced a staff canteen yet!
• Annual Events: HMRC allows tax-free treatment for annual staff events (e.g., Christmas parties) if the cost does not exceed £150 per head.

Key Considerations for Employers:

To ensure compliance with HMRC:

1. Document Purpose: Clearly document the purpose of any meal expenses.
2. Differentiate Routine and Work-Related Expenses: Regular team lunches are likely taxable, whereas meals due to business travel or external meetings typically are not.
3. Consider Tax-Free Allowances: Check if expenses fall under any exemptions, such as those for subsistence or staff entertaining.

If you’re uncertain about a specific scenario, then you can always talk to your regular MAP contact.