PAYROLL INSIGHT
Beware the phantom of the OpRA
RobinWoodhouse, employment taxes principal for PSTAX, reveals unintended tax consequences for assets transferred to employees following a period of use under salary sacrifice arrangements
S ections 69A and 69B of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), which deal with optional remuneration arrangements (OpRAs), were inserted by Finance Act 2017 with effect from tax year 2017–18. The new legislation ensures that, subject to transitional provisions and some specific exceptions (below), most of the tax advantages of employee salary sacrifice schemes are lost from 2017–18. This is because the taxable value of a salary sacrifice benefit in kind is now the greater of the salary sacrificed by the employee and the statutory taxable value of the benefit. From 2017–18, an employee benefit in kind is deemed to have been provided under an OpRA if it is: ● ● in return for the employee giving up the right (or a future right) to receive an amount of earnings, or ● ● under arrangements by which the employee agrees to be provided with a benefit rather than an amount of earnings. The new rules apply equally to tax- exempt benefits in kind, which become taxable if provided under an OpRA.
However, certain specified benefits (e.g. childcare, pensions, cycle to work scheme and ultra-low emission vehicles) are excluded from the new OpRA rules and retain their tax exemptions when provided via a salary sacrifice arrangement. ...most of the tax advantages of employee salary sacrifice schemes are lost... Transitional rules allowed salary sacrifice arrangements that had been entered into before 6 April 2017 to continue under the old regime until the earlier of a variation/ renewal of the terms or 6 April 2018 (i.e. the start of tax year 2018–19). Where, however, the benefit is the provision of a car which has carbon dioxide emissions over 75g/km or living accommodation or school fees, the transitional cut-off date is 6 April 2021. The OpRA changes had been expected for some time and really do nothing more
than put all taxpayers on an equal footing. From 2017–18, all employees earning the same value remuneration package will pay broadly the same amount of tax on that package, whether or not they participate in salary sacrifice arrangements. The government claims this is to ensure fairness, although it is clearly aimed at minimising the loss of tax revenues the Treasury had been suffering through the growing popularity of salary sacrifice arrangements. Let us consider the case of an employee who, since 2017–18, has had the use of an employer-owned fridge-freezer under a ‘white goods’ salary sacrifice arrangement whereby ownership of the asset passes from employer to employee at the end of a specified period of, say, one year. This type of arrangement has been popular in the workplace and, although diminishing since OpRA, continues to be used in some sectors such as the National Health Service. Under the tax legislation in place before 2017–18 there would have been two benefit-in-kind tax charges for the two separate events (i.e. the use of the asset and its subsequent transfer). The first ‘use
| Professional in Payroll, Pensions and Reward | March 2019 | Issue 48 22
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