45% unaware of tax and NICs rule changes with BiKs and cash options
13 November 2017
Are you aware that if you offer employees a benefit in kind and they have a choice of a cash option, the tax and NICs rules have changed?
This is the question we asked during October through our website quick poll. Anyone can respond to these polls, not just members of the CIPP.
We received 579 responses in total and 55% said they were aware of the changes but the remainder, a staggering 261 people (45%) said that they were unaware of the changes. Our polls are just a snapshot in time so not an accurate reflection, but these results do indicate that there is further work to do around raising awareness to ensure employers are being compliant with the change in legislation.
If you are wondering what these changes are, then read on and please do share with anyone dealing with benefits in kind:
Optional Remuneration Arrangements (OpRA) came into effect from 6 April 2017 and essentially it’s the government's way of trying to remove some of the previous tax and National Insurance contribution (NIC) breaks which came about if salary sacrifice was used to pay for Benefits in Kind (BiK). Although salary sacrifice is very much still with us, there are two types of ‘arrangement’ that come under OpRA. Type A arrangements is the first and are what employers have regarded as typical salary sacrifices, where an employee gives up cash earnings in exchange for a BiK. Type B arrangements are where an employee chooses a benefit rather than a cash allowance, such as a car or living accommodation. So for the purposes of the benefits code, a benefit is provided under an OpRA if it is provided under an arrangement of either type A or type B, so it isn’t just salary sacrifice that is captured. The benefits code has been revalued and the employee is taxed on whichever value is the higher – the cash or the benefit. However where an employee receives say a car allowance, but there was no option to receive a company car, the employee is taxed on the car allowance – cash is cash, you process as you would have pre April 2017.
There are four specific exemptions where the rules haven't changed - pensions, childcare, cycle to work and ultra-low emission vehicles; these are the politically astute exceptions so employees get to keep the tax and NIC breaks on those. Transitional provisions (also known as grandfathering) were brought in for arrangements in place before 6 April 2017; so the new rules for these arrangements will take effect from 6 April 2018 for all benefits except cars with CO2 emissions of 76 grams per kilometre and above, employer-provided living accommodation, and school fees. The old rules will continue to apply for these three types of benefit until 6 April 2021.