Guidance on Optional Remuneration Arrangements and Voluntary Payrolling
01 September 2017
HMRC’s Software Developers Support Team (SDST) has shared the following guidance on Optional Remuneration Arrangements (OpRA) and Voluntary Payrolling:
New rules for benefits in kind where they are provided in conjunction with Optional Remuneration Arrangements
From 6 April 2017, Income Tax and National Insurance contributions (NICs) advantages associated with OpRA (Optional Remuneration Arrangements) have been largely withdrawn. OpRA includes, salary sacrifice, cash allowance and flexible benefit packages with a cash allowance.
The new rules do not apply to pension contributions, childcare vouchers, workplace nurseries, directly employer contracted childcare, cycle to work or cars with CO2 emissions of 75g / km or less.
Where a BiK is provided as part of OpRA, the taxable value is now the higher of the taxable value of the BiK under the normal rules or the amount of salary/cash foregone. This is the value you use for calculating the Income Tax, Class 1 or Class 1A NICs, where liable, in respect of the BiK.
Where a BiK provided through OpRA would otherwise be covered by an exemption, that exemption no longer applies. The value to be compared with the amount foregone in determining the taxable amount is nil. The taxable amount and amount liable for NICs, therefore, is the amount foregone.
Employers are strongly advised to refer to the new legislation and our Technical Guidance in the Employment Income Manual (EIM) and Booklet 480.
What do I have to do?
You need to familiarise yourself with the new rules.
If your employees give up salary or a cash alternate for any other BiK you need to follow the new rules. You need to report the revised taxable value (the higher amount of the value of the BiK applying the normal rules or salary/cash foregone) on the P11D or through voluntary payrolling.
You don’t need to do anything if your employees are giving up salary for only pension contributions, childcare vouchers, workplace nurseries, directly employer contracted childcare, cycle to work or cars with CO2 emissions of 75g / km or less.
These types of BiKs are not affected by the new rules.
When do I have to do this?
The new rules came into effect on the 6 April 2017. Arrangements entered into before 6 April 2017 are protected until the earlier of:
i) The variation, renewal or auto-renewal of the arrangements
ii) 6 April 2018, except for cars (with CO2 emissions above 75 g /km), accommodation and school fees when the latest date for the new rules starting is 6 April 2021.
If an employee enters into a new arrangement on or after 6 April 2017 then the new rules apply straight away.
What changes do I need to make to my payroll / HR software?
To make the first year easier we have not updated the P46 Car for in year reporting and you should continue to use the existing form. Employees who need to pay more tax can either contact HMRC, or wait for the normal P11D process to pick up any corrections after the end of the year.
The software specifications for the 2017-18 P11D and P46 (Car) reporting from April 2018 are now available.
I am voluntarily payrolling what do I need to do?
The voluntary payrolling of BIKs is governed by the PAYE Regulations 2003. These regulations will be amended later in the year. In the interim period, if you registered for voluntary payrolling:
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By the start of, or prior to the 2017-18 tax year
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You are deducting tax for a BiK that is subject to the new OpRA rules
then you do not need to complete a P11D for the period as long as you deduct the tax due on the revised taxable value of the BiK for the full year and returned the information through your RTI submission. This concession only applies for 2017/18.
For example:
In tax year 2017/18, an employee gives up the right to a car allowance of £4,000 in return for a company car with CO2 emissions above 75g/km, through a salary sacrifice arrangement (OpRA). In June the employee upgrades the car to a higher model and forgoes an additional £2,000.
The taxable benefit is the higher of the modified cash equivalent of the car benefit (which in this case is £3,500) or the amount foregone (£4,000 + £2,000). In this case, the higher amount is the amount foregone of £6000, though the employer only payrolls £4,000 (the amount originally foregone) from the start of the tax year.
At the end of the tax year, the employer realises that the additional £2000 has not been included. On or before the final payment of wages for the tax year ending 5 April 2018. The employer may include the £2,000 as a taxable amount and submit through Real Time Information, in the final pay period.
The employer should ensure the employee knows that additional £2000 of the amount foregone is to be taxed so that there are no surprises for the employee.
(Please note, employers still need to work out the Class 1A NICs on the taxable value of the BiK and complete form P11D(b).)
I am registered for voluntary payrolling and using an intermediary / payroll bureau / agent to do my payroll, what do I need to do?
You need to make sure they are aware that you are providing your employees with BiKs in conjunction with OpRA and that they deduct the tax due from the correct taxable value as described above.
PAYE Regulations
The PAYE Regulations will be amended to ensure that the correct value is used.
We will publish draft regulations for stakeholder consultation as soon as we are able to after the summer, and these will be formally brought into effect in time for start of the 2018-19 tax year.
For ease of printing you can download this text from a PDF version - Guidance on Optional Remuneration Arrangements and Voluntary Payrolling