Optional Remuneration Arrangements and P11D reporting

Introduction

Rules were introduced in April 2017 regarding the tax and National Insurance Contributions (NICs) advantages that could be obtained under a salary sacrifice arrangement. A salary sacrifice is where an employee agrees to a salary reduction in exchange for a non-cash benefit.

The rules also extend to catch arrangements where the employee chooses a non-cash benefit instead of a cash allowance, as well as flexible benefit schemes where a cash alternative is available.

The rules refer to the above arrangements as Optional Remuneration Arrangements (OpRA).

What is an OpRA?

Under OpRA, employers are required to report benefits that are provided under ‘Type A’ or ‘Type B’ arrangements. These are:

• Type A arrangement: The employee is provided with a benefit in exchange for a right, or a future right, to receive an amount of earnings that would be chargeable to tax and NICs (ie salary sacrifice); and
• Type B arrangement: The employee agrees to be provided with a benefit rather than an amount of earnings (ie option of a cash allowance).

‘Affected’ and ‘Protected’ benefits

The general rule is that all benefits provided under a Type A or Type B arrangement are caught under the new rules. However, some ‘lifestyle’ benefits are protected and retain the tax and NIC saving advantages. These benefits are:

• Pensions (and pensions advice)
• Cycle-to-work scheme
• Childcare vouchers (*see overleaf)
• Company cars with CO2 emissions under 75g/km
• Employee counselling, outplacement and retraining costs

The new rules also apply to benefits that would otherwise qualify for either a limited or full tax exemption. For example, a mobile phone is provided to an employee by an employer that is available for private use is exempt from tax and NICs. However, where the phone is provided through an arrangement as described above, the exemption will no longer apply and the higher of the amount of the benefit calculated under normal rules and the salary forgone will be subject to tax and Class 1A NICs.

From when did the new rules apply?

Arrangements entered into before 6 April 2017 continued to be subject to the pre-2017 benefit valuation rules until the earlier of:

• The date of a variation, renewal or modification to the arrangement, or
• 6 April 2018

Transitional rules apply to company cars with CO2 emissions over 75g/km, school fees and living accommodation - the pre April 2017 rules remain until the earlier of 5 April 2021 or the date of a variation, renewal or modification to the arrangement.

Reporting

All OpRA benefits are reportable on the employee’s Form P11D and Class 1A NIC is payable on the higher reportable amount of the benefit calculated under normal benefit rules or the cash forgone.

*Childcare Vouchers

The childcare voucher scheme was closed to new entrants from October 2018.

Although the scheme was closed to new entrants from October 2018, the tax and NIC advantages will continue to apply to members who remain within the same scheme beyond that date.

Any questions?

For any queries relating to OpRAs, please do not hesitate to get in touch with your usual Smith & Williamson contact.

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.