Free or subsidised staff meals: the canteen exemption

Q: What is not covered by the canteen exemption?

Reimbursing food bought outside: EIM21672a says reimbursing an employee for food brought in from an outside provider, for example when working late, is taxable as earnings under section 70 ITEPA 2003, subject to any deduction otherwise due. Paying a provider for the employee's own order: where the employee contracts for the meal and the employer pays, the employer meets the employee's liability and it is taxable under section 62. Cash and card top ups: GOV.UK treats cash meal allowances, vouchers exchangeable for food or cash, and top ups to an employee's workplace food account by card or PIN as earnings, taxed through payroll with Class 1 National Insurance. Vouchers for meals outside the workplace: these go on the P11D, with Class 1 National Insurance through payroll on their value. Restaurant and pub meals: not a canteen and not the employer's premises, so outside section 317 (though they may be relieved as business travel subsistence or business entertaining under the separate rules referred to in EIM21670). Occasional staff events are considered under different rules, such as the annual functions exemption and the trivial benefits exemption.

Free or subsidised meals are tax free when they are provided in a canteen or on the employer’s business premises, are on a reasonable scale, and are available to all employees or all employees at a location. The exemption in section 317 ITEPA 2003 is lost for any meals provided through salary sacrifice or flexible remuneration arrangements, and cash, card top ups and outside meals are not covered at all.

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When are staff meals tax free?

Section 317 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) says no income tax arises on free or subsidised meals provided by the employer in a canteen or on the employer’s business premises if four conditions are met:

Condition A: the meals are provided on a reasonable scale.
Condition B: all the employer’s employees, or all of them at a particular location, may obtain a free or subsidised meal or a free or subsidised meal voucher or token.
Condition C: in a hotel, catering or similar business, if staff eat in a restaurant or dining room while meals are being served to the public, part of it is designated for employees only and they eat there.
Condition D: the provision is not under relevant salary sacrifice or flexible remuneration arrangements.

“Meals” includes light refreshments (section 317(6)). GOV.UK confirms that where the exemption applies the employer has nothing to report and no tax or National Insurance to pay.

What counts as a canteen or the employer’s premises?

HMRC’s Employment Income Manual at EIM21671 says “canteen” has its ordinary meaning, and a restaurant, cafe, pub or similar place serving the public at large is not a canteen. The canteen need not be on the employer’s premises or limited to one employer: a single canteen serving everyone on an industrial estate qualifies if meals are available to all employees of the employers concerned.

The exemption also covers contract workers eating in a host employer’s staff canteen. EIM21670 explains that regulations from 14 December 2004 extended relief to employees of a third party who eat in the same circumstances as the host’s own staff.

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Does every employee have to be able to get a meal?

Every employee must have the opportunity, but nobody has to take it up. EIM21672 says it is enough that all employees could at some time get a free or subsidised meal. For multi site employers, staff at a site with no canteen still count if they could use one when visiting another site. If some staff have no access at all, the exemption fails unless those staff are given meal vouchers instead.

Once the condition is met, working lunches on a reasonable scale on the employer’s premises are also exempt, even if not everyone attends them. HMRC’s example at EIM21673 shows how fragile this can be: a small company’s office working lunches stop qualifying when it hires a security guard who is not invited, and qualify again once he is given meal vouchers. The vouchers he uses at a chip shop are not themselves covered by section 317.

What does “reasonable scale” mean?

EIM21671 tells HMRC officers not to read the phrase too narrowly. Better or more heavily subsidised provision for directors is not unreasonable in itself. A charge should only be raised where provision is clearly unreasonable, such as an elaborate menu with fine wines and cigars. A glass of wine with an otherwise modest meal is acceptable. Meals for directors only are a different problem: GOV.UK lists meals not available to all staff as not exempt, because condition B fails.

How does salary sacrifice remove the exemption?

Condition D was added by section 60 of the Finance Act 2010 with effect from 6 April 2011. Section 317(5A) defines the two arrangements that break it:

Relevant salary sacrifice arrangements: the employee gives up the right to an amount of earnings in return for free or subsidised meals.
Relevant flexible remuneration arrangements: the employee and employer agree that the employee will have free or subsidised meals rather than some other employment income.

Section 228A ITEPA 2003, the general optional remuneration rule, lists section 317 as a “special case exemption”, because canteen meals have their own salary sacrifice condition rather than following the general one.

The loss of exemption only reaches the meals linked to the arrangement. EIM21677 explains that a general subsidy, which the employer pays regardless of any sacrifice and which lowers canteen prices across the board, can stay exempt alongside a sacrifice scheme. HMRC will accept that the taxable benefit for each employee equals the salary sacrificed or flexible allowance applied, where the employer’s VAT inclusive payment to the caterer closely tracks those amounts and they broadly match actual take up. If they do not match, a more detailed calculation is needed. GOV.UK adds that if the cost of the meals is less than the salary given up, the salary amount is reported.

How does this work in practice?

Illustration only. An employer pays its caterer a fixed annual subsidy that cuts all canteen prices by a third. It also runs a flexible benefits plan under which Sam chooses to swap £50 a month of salary for canteen credit, which the employer passes to the caterer.

The general subsidy remains within section 317, provided conditions A to C are met.
Sam’s £600 a year of meal credit fails condition D. If Sam’s actual meals broadly match the £600, HMRC will accept a taxable benefit of £600, reported on the P11D or through payroll, with Class 1A National Insurance on it.

Since the sacrifice saves neither tax nor National Insurance, most employers that used such schemes withdrew them, as EIM21677 anticipated. See our guide to salary sacrifice schemes for the wider rules.

What is not covered by the canteen exemption?

Reimbursing food bought outside: EIM21672a says reimbursing an employee for food brought in from an outside provider, for example when working late, is taxable as earnings under section 70 ITEPA 2003, subject to any deduction otherwise due.
Paying a provider for the employee’s own order: where the employee contracts for the meal and the employer pays, the employer meets the employee’s liability and it is taxable under section 62.
Cash and card top ups: GOV.UK treats cash meal allowances, vouchers exchangeable for food or cash, and top ups to an employee’s workplace food account by card or PIN as earnings, taxed through payroll with Class 1 National Insurance.
Vouchers for meals outside the workplace: these go on the P11D, with Class 1 National Insurance through payroll on their value.
Restaurant and pub meals: not a canteen and not the employer’s premises, so outside section 317 (though they may be relieved as business travel subsistence or business entertaining under the separate rules referred to in EIM21670).

Occasional staff events are considered under different rules, such as the annual functions exemption and the trivial benefits exemption.

How are non exempt meals reported?

GOV.UK says free or subsidised meals that are not exempt, for example elaborate meals, meals off site that are not in a canteen, directors only meals and meals under salary sacrifice, must be reported on form P11D with Class 1A National Insurance paid on the cost to the employer. EIM21670 confirms that the cash equivalent is the expense incurred by the employer or other provider. Our guides to benefits in kind and the P11D and Class 1A National Insurance explain the deadlines.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.