Salary sacrifice guidance updated

04 September 2017

HMRC’s guidance ‘salary sacrifice for employers’ has been updated on GOV.UK to reflect the changes under Optional Remuneration Arrangements which came into effect April 2017.

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Insurance contributions (NICs) advantages associated with OpRA (Optional Remuneration Arrangements) have been largely withdrawn.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 Benefit in Kind (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 the Technical Guidance in the Employment Income Manual (EIM) and booklet 480.

Also see recently published ‘guidance on Optional Remuneration Arrangements and voluntary payrolling’ shared by HMRC’s Software Developers Support Team (SDST).