Company in the leisure industry has in place a PSA covering "Small (non-cash) gifts" and I'm currently reviewing the nominals to ensure I've picked up all such items.
It has come to my attention that, whilst there is no formal company policy in place covering staff meals, the restaurant manager occasionally provides some members of staff free food and drink - it's all very ad-hoc, although clear records are available of who has had what as they are processed as complimentary meals. Not all staff are in receipt of such generosity though!
I'm in two minds as to whether the cost of these meals should be treated as a taxable benefit, or whether it's reasonable to ignore under the trivial benefit rules. No single meal costs more than £50. Total income tax at stake is around £500.
Any suggestions?
Related resources
Replies (30)
Please login or register to join the discussion.
I don't know much but I know one thing. For staff meals to be allowable they must be available to all members of staff.
In fact, all staff are entitled to subsidised meals - e.g. burger & chips for £2 instead of £12. It's just the case that sometimes they are actually given for free.
… the restaurant manager occasionally provides some members of staff free food and drink …
How does the manager decide who gets the feeebies and is it the same (few?) all the time?
Is the value not marginal cost, so probably very little?
Tends to be a few management personnel who receive the most of these little treats. Tends to be arbitrarily offered though - such as an offer of lunch after a catch up on work-related matters.
I would go trivial benefits every time, provided that they qualify
Not a reward for doing something
Not promised or expected because of doing something
Should be a complete surprise
Promising a free meal for working through lunchtime probably does not qualify
Should be a complete surprise
Promising a free meal for working through lunchtime probably does not qualify
Yes and the fact that it “Tends to be a few management personnel who receive the most of these little treats”, doesn’t help.
PSA looks like the answer and, at marginal cost, can’t believe there’s too much tax at stake. Unless it’s steak.
The Masters of Malvern College may be relevant. I assume that there is a point at which any uneaten food has to be thrown away? I recall HMRC mentioning bread - or was it fishes and loaves? - in their manuals.
"I assume that there is a point at which any uneaten food has to be thrown away?"
Reminds me of the hand-written sign that I saw in a Whitehall ministry (who's name I'll not disclose), shortly after a large 'working group' had finished their luncheon.
The overflowing platters were placed on a table outside the meeting-room, and the sign said "This will food will shortly need to be disposed of - please help us to save waste"!
Any factory I've ever worked in always new when all the customer visits were - and more importantly when the buffets finished :)
Likewise - some members of staff would beat Usain Bolt getting to the kitchen when free food appeared.
Reminds me of the hand-written sign that I saw in a Whitehall ministry (who's name I'll not disclose), shortly after a large 'working group' had finished their luncheon.
The overflowing platters were placed on a table outside the meeting-room, and the sign said "This will food will shortly need to be disposed of - please help us to save waste"!
And that reminds me of a major company who would not let employees take equipment intended for disposal - but they would load up skips, move them outside the factory gate - but still on the factory land for collection, and then turn a blind eye to staff "stealing" from the skip.
Which then turned into a game where staff would load the skip with rubbish, and then just before the skip was about to be moved, carefully place the things they actually wanted on the top, wait for it to be moved outside of the gate, and then immediately retrieve the items they wanted.
(I hasten to add that everything that went in the skip was supposed to go in the skip. The staff were just sorting the rubbish so that the bits they wanted were always on the top of the skip when it was moved for collection)
This was a very long time ago (90s) and I have no idea if it's still the same.
You know you're getting old when someone writes "This was a very long time ago (90s)" and you think to yourself "What? The 90s was only yesterday!"
I assume that there is a point at which any uneaten food has to be thrown away?
That doesn't change how much it cost, does it?
I recall HMRC mentioning bread... in their manuals.
Yes, but in the context of a baker who makes it. Bought bread cost what it cost.
(I realise that, technically speaking, I've made only one point; but I thought it was such a big one it was worth mentioning twice.)
That doesn't change how much it cost, does it?
It doesn't change the marginal cost of the food that would otherwise have been thrown away (which might already be zero). But what then is the marginal cost to the business of not throwing it away, and giving it to the staff to eat instead? Because that is the amount of the benefit. The cost of preparing it to be eaten or not be eaten has already left the building. It's like the additional school places that would otherwise have not been filled.
Yes, but in the context of a baker who makes it. Bought bread cost what it cost.
Baker baked 100 loaves at a cost of £100. He sold 97 at £2 each. The marginal cost of the three loaves not sold (that he's otherwise going to throw away) is already zero, because he's more than covered his costs with the loaves he actually did sell. The marginal cost of not throwing them away is even more zero, because any loss would have been realised in the not having sold them in the first place.
You seem to not understand marginal cost, and want to apply average cost to the loaves, in assessing the cost of the unsold three loaves. Any loss was made as soon as they were baked. Their additional cost is already gone.
We had a party at the pub for our little one. There was food left over. Each potato that was left cost us the same as each potato that was eaten. Had we bought the exact right number of potatoes, everyone we originally invited could have eaten just the same and we would have spent less. The difference - the extra we spent - it seems to me, was the marginal cost [of the leftover food]. (And, if you read BIM45065, this view seems more consistent with what HMRC says than does yours.)
Now, when we opened the doors and let others enjoy said leftovers, that didn't cost us any more extra. Question is, is that relevant - is that the true measure of cost? If yes, then I agree with you. If no, I don't.
I didn't think dragons ate potatoes. I thought they preferred maidens or, in the case of knights, tinned food. ;-)
Did the pub charge you by the potato, or by the ten potatoes? In the latter case, if you needed 51 potatoes you'd have had to have paid for 60 potatoes, and the marginal cost of the 1 potato is the cost of 10 potatoes.
However, presumably you had to order in advance, so the pub knew how many potatoes it needed to buy, and you decided to cater for all whom you'd invited. So, the marginal cost of folk not turning up isn't measured in the cost of any potatoes, it's measured in annoyance at non-attendees.
I don't see the relevance of BIM45065, because it deals with gifts. I confess it doesn't mention bread being sold at a discount at the end of the day. The only relevant one is the supplier's cheap meal, for which a cost is assumed, but no mention is made of how that cost should be calculated.
Fortunately, for our specific purpose here we have some legislationy type stuff to guide us along (ITEPA 2003, s 204). It says that the cost of the benefit is the expense incurred in or in connection with provision of the benefit (a hypothetical free lunch of dubious existence). It goes on to say, in parentheses, that the cost should include a proper proportion of any expense relating partly to the provision of the benefit and partly to other matters.
When you incurred the expense of 20 excess potatoes you did so not in order to feed the inebriates who habitually frequent the hostelry (the benefit), but in order to feed your expected guests (the other matter). I respectfully suggest that a proper apportionment (Westcott v Bryan again) of your cost is 100% to the other matter and 0% to the benefit.
Turning to the staff canteen type situation, in which the OP kind of sits, I think. Chef decided to make 90 portions (he has to make them in trays of 30 portions) of apple crumble. The cost of the ingredients per tray is £10. The cost of the leccy for baking is £6, which would have been incurred whether he was cooking 30, 60, 90 or 120 (150 plus would have meant that he'd have had to have used the big oven).
Now, I put it to you that the marginal cost of portion 1 is £16, that the marginal cost of portions 31 and 61 is £10, and that the marginal cost of the other 87 portions is nil.
But let's pretend that the cost of each portion is £0.40 (£36/90). That is average costing though, it has to be said.
If only 80 portions were sold and we give 10 portions to a select group of employees, rather than just chuck them in the pig bin, the cost of those 10 portions is £4.
Now those 10 portions were cooked in the expectation of selling them all - or maybe chef's a dab-hand at management accounting too and knew that he needed to make 90 in order to satisfy a demand of 80 and worked out what price he had to sell the 80 at to cover the cost of 90 - and so a proper apportionment between the free lunches (the benefit) and covering demand (the other matter) is again 100% to the other matter and 0% to the benefit.
At least, that's how I read EIM21110 and EIM21111. It's just that HMRC don't contemplate something that might go to waste in their examples. Something I suspect that they do on purpose.
I would also like to note that it's unlikely that portions 1, 31 and 61 would be among the 10 unsold portions. Chef's shown us his wisdom and I'm sure that those would have been the first to have been served up as he progressed to each tray!
Not sure why there's so much interest in the 'potato question' ... what I want to know is when it became possible for a 'little one' to host a party down the pub?
But back to the central point ... "Each potato that was left cost us the same as each potato that was eaten" is only true because you agreed in advance a price for a fixed number of potatoes.
So there was no "extra we spent" - just an excess of potatoes (over what turned out to be needed).
Which is why there was zero "marginal cost [of the leftover food]" ... the cost to you wasn't going to vary whatever you did with the leftovers (fed them to guest's pooches, threw them at passing Emmets, took them home to make an unexciting pie, or sold them to non-guests at 1/2-price until the landlord's intervention).
From memory (never a good start) the examples of using marginal costs to reduce the value of BiKs relate to non-degrading items (which therefore just 'might' have otherwise been sold) as opposed to something that has no viable alternative life (aka 'waste').
Baker baked 100 loaves at a cost of £100. He sold 97 at £2 each. The marginal cost of the three loaves not sold (that he's otherwise going to throw away) is already zero, because he's more than covered his costs with the loaves he actually did sell. The marginal cost of not throwing them away is even more zero, because any loss would have been realised in the not having sold them in the first place.
You seem to not understand marginal cost, and want to apply average cost to the loaves, in assessing the cost of the unsold three loaves. Any loss was made as soon as they were baked. Their additional cost is already gone.
Feel like it's you not understanding marginal cost.
Marginal cost is the additional cost incurred in producing one more unit.
In your baker example, if it costs the baker £100 to make 100 loaves, how much would it cost to make the 101st loaf? Given the oven is already on and they're in the kitchen with the dough or whatever, the marginal cost would likely be the pure ingredient cost as no additional overheads would be incurred (or would be so negligible as to not warrant consideration).
Whether they have recouped their costs already by selling enough of the loaves could not have less to do with it.
* unless in this taxable benefit context, marginal cost has a complete different definition from its definition in economics.
I wasn't referring to the marginal cost of originally baking the three unsold loaves. That cost has already been incurred. I was referring to the marginal cost of not then selling them and, most importantly, to the marginal cost of deciding to give them to the employees, rather than throw them away, well after the oven had cooled.
It's not the loaves themselves that have a marginal cost. Decisions have a marginal cost, the decision to bake 95, 96, 97, 98, 99, 100 or 101. The decision to only bake 95 or 96 when 97 could have been sold has an opportunity cost. The decision to bake more than 97 has a cost, which I agree may increment. The decision to give them to the staff has no marginal cost though. That's my point.
I think we all understand that point. But I, for one, remain unconvinced that it's what the legislation tests. The purpose test you impute isn't there - the law asks about the cost, nothing more. And IMHO the cost of a meal of a restaurant-worker that is fed on site is the same whether they eat [a meal that might otherwise subsequently have been sold] before the guests arrive or eat [a meal that we now know was not sold and would now otherwise be thrown away] afterwards.
It's what HMRC think the test is.
EIM21110:
"The expense which has to be included in the calculation of the cash equivalent of an in-house benefit under Section 203(2) and Section 204 ITEPA 2003 is the marginal additional expense of providing the benefit. This is the expense that the employer would have saved if the benefit had not been provided to the employee."
How much additional expense is incurred in feeding a meal that has been prepared but not sold to an employee? How much would the employer have saved by not feeding that meal to the employee?
It's interesting that in this discussion we seem to have collapsed the distinction between the two types of benefit, bought in (my potatoes) and inhouse - and done so quite convincingly.
By way of personal closure on the above discussion (i.e. I'm out after this :-))...
I don't agree with Dulls. My uneaten-by-invitee potatoes did cost a fraction of the whole. That's just a fact: I paid for them, I know. The marginal cost* of those potatoes equalled the pro-rated cost. And (IMHO) that figure would come into the cost as described by ITEPA 2003, s 204. The parenthesised inclusion of a proper proportion of any expense relating partly to the provision of the benefit and partly to other matters might add to the figure already obtained; it does not detract therefrom.
However, if, having fed my guests, I had given the leftovers to those vultures I call employees, I wouldn't be determining the cost of that provision under s204. I would be using s206. This is where purpose does come in: had I bought the potatoes for the purpose of feeding my pet vultures, I could not use s206; because I didn't, I can. At least, that's what I would argue.
* Or 'cost', for short.
I infer from the question that the restaurant manager is acting without authority in feeding some of his colleagues. If an employer gives employee A good X then A has a BIK (the measurement of which is a separate issue). If employee B steals good X from the employer and gives it to A, I don't see how A has a BIK. It has not been received by reason of his employment but by reason of being a mate of B. I don't go as far as accusing the manage of theft but, as I've said, he or she does seem to be acting without authority, even if it merely in disposing of waste by giving it to colleagues . The dining employees are benefiting from the largesse of the manager and not that of the employer, especially as it seems to be the manager who decides who gets to dine. (I know that benefits provided by third parties can still be BIKs).
As the manager's actions give, or might give, rise to tax problems for the employer and for employees he or she should be ordered to stop until the tax issues have been resolved.
I'm not saying the above analysis is correct, but it might give food for thought.
The tax cost could be more than the £500 you estimate, for starters there is class 1A nic, and for afters (as you are posting after the filing deadline) penalties for late filing or penalties for inaccurate returns. There could also be back duty and penalties for errors on earlier years' P11ds.
Perhaps, if the food would otherwise be waste, opportunity cost is the way to measure any BIK (which is Dull's argument).
Bon appé[***].
The censor has been at it again, this time because the French for appetite contains the name of small garden bird, that it either blue, grey, great or long tailed.
Not sure which I enjoyed more ... your hope that your analysis "might give food for thought" ... or your closing sign-off (c/o the mindless AI used by Sift)!
BTW I get plenty of Great, Blue, Long-tailed (and sometimes even Coal) varieties in my garden ... but Grey? Am I missing out?