Date posted: 8th Nov 2018
In April 2017, HMRC introduced the OPRA rules – not to be confused with a trip to the theatre – in relation to salary sacrifice arrangements. OPRA stands for “optional remuneration arrangement.”
Broadly, you need to consider the OPRA rules if you offer an employee the choice between taking their full salary or perhaps giving up (or sacrificing) part of their salary in exchange for a benefit in kind. One of the most popular OPRA’s is giving up salary for the use of a company car.
There are limited circumstances where the OPRA rules don’t apply (such as cars which emit very low emissions i.e. < 75 g/km of CO2) but employers and employees need to be aware of the tax issues.
So, what are the tax issues?
Essentially, when an arrangement is caught by the OPRA rules, it means that you need to work out the tax payable based upon the higher of a) the salary given up and b) the value of the benefit.
So let’s take the example of Hannah.
Hannah sacrifices £3,000 of salary for a non-low emissions car which has an annual tax benefit of £4,000. Hannah would be subject to tax on the £4,000 as this is the higher amount.
If Hannah didn’t like this scenario, she may wish to choose a car with lower CO2 emissions (but still not low enough to be classed as a very low emissions car) which may reduce the benefit in kind. Lets say the benefit in kind reduced to £2,500 – Hannah would then be taxed upon the £3,000 of salary given up.
So what are the changes?
Some large businesses that operated company car schemes for external customers had spotted a flaw in the legislation.
In essence, some of the salary given up was towards costs that the employer would incur on the company car such as insurance, road tax, repairs and servicing, so therefore the amount given up for the car was essentially a lower amount as some of the salary was given up towards these ‘running’ costs.
However, HMRC have clarified that their original intention was not followed by the draftsmen when writing the legislation and it is there intention to introduce amended legislation, presumably from April 2019, to amend this discrepancy.
If you are an employer considering a company car (or any other benefits) for your employee or perhaps you are an employee considering the offer of a company car (or any other benefits), do give us a call.