The optional remuneration arrangement (OpRA) legislation was introduced on 6 April 2017 and replaces salary sacrifice. The new rules apply to any employee that is offered either cash or the alternative of a benefit in kind in their contract of employment. Under these new rules, the taxable benefit is the greater of the cash amount sacrificed or the amount of the actual benefit in kind.
Most existing arrangements set up before 6 April 2017 will automatically be subject to the new rules. However, the following arrangements will not be subject to the new rules until 6 April 2021 unless they are varied, renewed or modified:-
- cars with CO2 emissions of more than 75g/km
- school fees (even if varied, renewed or modified as long as the arrangement relates to the same child and school)
The only benefits that don’t need valuing for a salary sacrifice arrangement, as you don’t have to report them to HMRC, are:
- payments into pension schemes
- employer-provided pensions advice
- childcare vouchers, workplace nurseries and directly contracted employer-provided childcare
- bicycles and cycling safety equipment (including cycle to work)
If an employer’s benefit scheme provides any other type of benefit then the new rules will apply and these benefits must be reported on the P11D form.
How OpRA works for cars
Cars over 75g/km
For a car over 75g/km you must compare the salary sacrifice relating solely to the car (not including any other car-related benefits such as insurance) and the normal car benefit charge for the car (ie. List price x CO2 emissions percentage). The higher of these two figures is the taxable benefit to be shown on the form P11D and which the employer must pay Class 1A NIC. Any employee payments for private use and/or capital contributions will continue to reduce the value of the taxable benefit.
If the cash option is taken then the amount is simply added to the payroll and dealt with accordingly.
Cars less than 75g/km
The new rules do not apply to cars with emissions of 75g/km or less. Cars with CO2 emissions of 75g/km or less continue to be taxed on the cash equivalent of the benefit without having to make a comparison with the salary foregone.