From 6 April 2011: the tax exemption for tax-free lunches will no longer apply when an arrangement is made to introduce this benefit as part of a salary sacrifice scheme.

This does not mean, however, that an employer cannot introduce non-cash benefits, such as a workplace canteen, as part of a tax and NICs efficient bonus incentive structure instead.

For example:

Bloggs Enterprises Limited operates a discretionary bonus scheme for its employees. Times have been hard, some employees have been offered a four day week, and bonuses are strictly off the menu. When things pick up, MD Mr Bloggs (after talking to his advisers) decides that following the increase in NICs rates in 2011/12 he will start to operate a works canteen arrangement instead of re-establishing annual bonuses.

The company does not have to foot the entire bill: in the first year, the company subsidises the employees' lunch by £2 per day per head. In the second year (economic circumstances permitting) it can increase the subsidy.

Useful links:

Subsistence: an employer's guide