Offering perks like free food and accommodation to your employees could land you with a hefty bill from the taxman. Gillian Wrigley, a partner in the tax department at chartered accountant French Duncan, offers some advice
Hospitality businesses often provide employees with accommodation or free food and drinks during working hours, and these benefits have been under scrutiny from the Inland Revenue in recent years. The tax authorities are interested in determining whether staff are receiving a benefit in such circumstances, and whether there's a tax liability. Hospitality firms have to monitor their procedures very carefully to ensure they don't fall foul of the regulations and incur unexpected tax bills.
Generally speaking, benefits provided by an employer to an employee are liable to income tax. Such benefits are advised to the tax authorities and to the employee by means of forms P11D.
Where staff are provided with food from a restaurant or canteen, the practice is that no tax charge will arise, provided the food isn't consumed within a restaurant open to the public or, if this is the case, that staff are seated within a segregated area.
Where accommodation is given to employees, there are only a number of situations in which it will be exempt from tax. These are if the accommodation is necessary for an employee to carry out their job properly, for example a live-in nurse, or if they are in a job where employers usually provide accommodation and it helps them to do their job better, for example, a school caretaker.
Exemptions will also be granted where staff need to live in that accommodation because of a threat to their personal safety and the living accommodation is part of the arrangements to protect them.
If there's to be a tax assessment based on staff eating in the restaurant, then by the time you multiply the number of employees by the number of meals over an extended period, the tax charge could wind up as a very significant cost.
It's not only the place of eating that counts. The tax authorities are looking for staff to be served "reasonable" food. While the sort of food that can be described as "reasonable" might be open to debate, if employees sit down to a five-star, fine-dining experience every lunchtime, then that is unlikely to be regarded as reasonable!
With regard to hotels providing accommodation for staff, the primary concern is often whether employees are given an opportunity to receive extra wages rather than have their accommodation provided for them. In such cases, the Inland Revenue is interested in quantifying those wages for the purposes of raising tax assessments.
In situations where accommodation is provided, it's imperative to be able to detail a reason as to why it was necessary or customary to provide it. It may be reasonable for a member of staff to be given accommodation in between an overnight spilt shift, for example, or for some isolated hotels to provide accommodation for all its staff. Each case will be taken on its merits, however, and hotels must be able to stand by their actions in this regard.
While the Inland Revenue is rigorous in investigating exactly what's reported for employees in these areas, it permits employers to benefit staff on special occasions to the tune of 150 a head annually without requiring it to be reported.
Should an individual staff member be offered an alternative between accommodation and an increased salary, then employers should be aware that this can lead to an Inland Revenue investigation. Try to avoid this.
Employers should consider whether they impose any limits on what food staff might eat from the menu, to determine whether or not it could be classified as "reasonable".
Employers should consider separating off an area of a canteen or restaurant exclusively for staff use.
An employer should consider if there is a simple way of assessing what the value of any accommodation provided to staff might be.
There's a maximum penalty of 3,000 for each P11D form which the Inland Revenue considers to be stated incorrectly.