Pictured above: Graham Apperley

An end to tax-free cheap meals has been served up by the Government.

Now, accountants and business advisers Horwath Clark Whitehill are warning firms they have no choice but to swallow the changes.

HM Revenue & Customs has published draft legislation which will restrict the tax exemption for work canteens.

Graham Apperley, Midlands tax director, said: "It will affect the exemption for free or subsidised meals where an employee has an entitlement in conjunction with salary sacrifice or flexible benefits arrangements.

"Basically, HMRC maintains some firms have been pulling a fast one, allowing employees to purchase meals out of gross pay, and hence obtain a significant tax and National Insurance advantage over those who have to buy their meals using their net pay, from which tax and NICs have already been deducted."

The new rules will take effect from April 6, 2011, and affect income tax and NIC. 

Mr Apperley went on: "Usually, meals provided for employees, including directors, a canteen or on the employer's premises are not taxable benefits.

"That is providing the following conditions are met - the meal is on a reasonable scale; all employees, or all employees at a particular work location, may obtain a free or subsidised meal (or a voucher for one); and in the case of a hotel, catering or similar business, if free or subsidised meals are provided for employees in a restaurant or dining room when meals are being served to the public, part of the dining area must be designated for staff use only and the meals must be taken in that part.

"The change will remove the tax exemption in circumstances where employees are in effect using a designated amount of their gross remuneration to fund the purchase of food and drink at work. It will apply to arrangements such as salary sacrifice and flexible benefits packages."

Mr Apperley said only a minority of workers across the country were likely to be hit.