Transitional protections from tax which had applied to benefits provided under optional remuneration arrangements (OpRA), such as salary sacrifice schemes, have now ended following the introduction on the 2018/19 tax year, with the ATT warning employers to consider if they need to recalculate the value of benefits for tax purposes
The OpRA rules were introduced on 6 April 2017 to reduce the tax savings that an employee might otherwise enjoy by exchanging potential or actual salary for a more tax-efficient benefit. Where the OpRA rules apply, they ensure that the value of the benefit subject to tax for the employee is the higher of the earnings given up or the cash equivalent of the benefit.
Arrangements entered into before 6 April 2017 were given transitional protection so that the new rules would not apply until the earlier of 6 April 2018 or the date of variation, modification or renewal of the agreement. It is the benefits under those arrangements which may now be less tax-efficient.
Yvette Nunn, co-chair of ATT’s Technical Steering Group, said: ‘Employers who continue to provide flexible benefits or salary sacrifice arrangements where the arrangements were made prior to 6 April 2017 should review these to ensure that the value of any taxable benefit is calculated on the right figure. Care needs to be taken as the OpRA rules do not apply to all benefits, and some benefits get a longer period of transitional protection.
‘The new rules can operate particularly harshly in some circumstances. Before April 2017, an employee who had chosen to give up salary in exchange for a mobile phone would not normally have paid any tax on the benefit of the mobile provided. This is because the provision by an employer of a single mobile phone to an employee is generally a non-taxable benefit. But now, where a mobile is provided as part of an OpRA, the employee cannot benefit from the exemption. Any such arrangement to provide a mobile phone made prior to 6 April 2017 will have been given one year’s grace under the transitional provisions but will now be subject to tax from 2018-19 onwards.
‘Employers need to ensure that they use the correct taxable figure when they report the benefits in kind which they have provided to employees at the end of the 2018-19 tax year. Any employer who includes taxable benefits on their payroll5 will need to do this very quickly, to ensure that they process the correct figure in their first salary payments for 2018-19.’
Report by Amy Austin