Monetary Meal Allowance: what pitfalls may occur when it is used?
With effect from 1 January 2020 and after more than 30 years, employers are thanks to the Amendment to the Income Taxes Act allowed to provide their employees with a meal contribution in financial form without having to prove its purpose. According to the Ministry of Finance’s statement, the “monetary meal allowance” is an addition to the current tax benefits for catering. What are the rules of its provision and what should not be forgotten so that employers can fully use the tax benefits?
Monetary meal allowance
Due to the unofficial terminology the Ministry of Finance has chosen for the presentation of the new benefit, some employers regarded the monetary allowance simply as a meal voucher converted into a financial form. But is this really the case? Can the existing internal directive be used, its original wording kept and the term “meal voucher” replaced with “meal allowance”?
Conditions for the tax deductibility of expenses on the part of the employer
Similarly to the meal voucher, it can be considered a tax expense on the part of the employer provided that the employee’s presence during the scheduled shift lasts at least 3 hours. Another similarity to the meal vouchers is that the meal allowance can be claimed as a cost of (an expense for) another meal of the employees if their shift in total exceeds 11 hours including the mandatory break. However, it cannot be claimed as a tax expense if the employees are entitled to a per diem during their shift according to the Labour Code. In contrast to the meal vouchers, however, the monetary allowance is not limited in respect of the amount the employer is entitled to report as tax expenses, but the advantage of unlimited tax expenses brings about the obligation of potential taxation of the employees’ income. This also concerns the obligation to pay social security and health insurance contributions – see below.
Tax exemption for the employees
The provision of the monetary meal allowance is conditioned by the shift worked by the employee as determined by the Labour Code (not by working the whole shift, however). While the value of a meal voucher is, as a matter of fact, not limited (the value should reflect the catering prices at the place of work and now it can be even higher than the optimal value arising from the tax deductible expenses), in case of the meal allowance, the maximum value of the allowance for the purpose of tax relief is set at 70% of the upper limit of the per diems that salaried employees on a business trip of 5 – 12 hours can be provided with (currently CZK 75.60). If the allowances provided by the employer are higher, the amount over the statutory limit is subject to taxation and social security and health insurance payments.
The pitfalls of the monetary meal allowance
Given the fact that one of the conditions for the tax relief on the monetary meal allowance is the employee’s scheduled shift, it is necessary to reflect situations when this condition cannot be met in a standard way (e.g. statutory executives exercising their positions based on an executive service agreement, released council members, employees with an agreement to complete a job, employees working from home if they are entitled to schedule their working hours by themselves, etc.).
In case of shifts that are longer than 11 hours, it is possible to provide two allowances. However, in respect to the above-mentioned limit for the tax relief, we need to keep in mind that if the employer provides a second allowance that together with the first one exceeds the statutory limit, it is regarded a taxable and insurable income of the employee (i.e. the amount exceeding CZK 75.60/day will be taxable).
In practice, we often encounter concerns of payroll accountants whether the monetary meal allowance may be subject to judicial enforcement of a resolution or seizure. According to the information provided by the Ministry of Finance that refers to Section 299 of the Civil Procedure Code, this kind of income cannot be subject to such action. Yet we share the concerns of our clients, as an opposing opinion could also be concluded from the respective regulation, i.e. that the monetary allowance can be regarded as a performance in cash of a loyalty or stabilisation nature and thus it can become subject to seizure.