Payroll insight
of asset’ charge (under section 205, ITEPA 2003) would have been, annually, 20% of the asset’s market value when first used to provide an employee benefit. The second ‘transfer of asset’ charge (under section 206, ITEPA 2003) would have been based on the asset’s market value as at the date of its transfer to the employee. However, where an asset is transferred to an employee after it has previously been used to provide a benefit in kind, the ‘transfer of asset’ charge at section 206(3) becomes the higher of: ● ● the asset’s market value at transfer, and ● ● its market value when first used to provide an employee benefit less any amounts determined under section 205. Consequently, under the OpRA legislation in place from 2017–18, there will be a potentially greater tax liability than previously using the above example. The ‘use of asset’ charge will now be the greater of the section-205 amount (i.e. 20% of its market value when first used to provide an employee benefit) and the salary sacrificed by the employee for the asset’s use, which might be as much as its new value. Second, the ‘transfer of asset’ charge under section 206(3) will be
the higher of: ● ● its market value at transfer, and ● ● its market value when first used to provide an employee benefit less any amounts determined under section 205. ...employers should check their scheme terms to ensure this particular Let’s put some figures on our example. The employee has the use of an asset with an original market value of £1,000 from 6 April 2017 until 5 April 2018, at which point ownership is transferred to him at a second-hand value of £500. The employee gives up £1,000 salary under a salary sacrifice scheme. Under OpRA, the 2017–18 ‘use-of- asset’ benefit in kind will be the greater of the section 205 benefit (i.e. £1,000 × 20% = £200) and the salary sacrificed phantom is exorcised ...
(£1,000). The subsequent ‘transfer-of-asset’ benefit in kind will be the greater of the asset’s market value at transfer (£500) and its market value when first used to provide an employee benefit less any amounts determined under section 205 (i.e. £1,000 - £200 = £800). This gives a total benefit-in-kind charge of £1,800 for an asset that was never worth more than £1,000 in the first place. This effective double-charge, due to effect of OpRA, could have been avoided if ownership of the asset had been transferred to the employee at the outset, thus taking the ‘use-of-asset’ element out of the equation. In that case, the benefit in kind charge would have been restricted to the transfer of the asset at its original market value of £1,000. n Observation Many scheme providers have been quick to recognise the problem and have amended their schemes accordingly. However, employers should check their scheme terms to ensure this particular phantom is exorcised for good.
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Issue 48 | March 2019
| Professional in Payroll, Pensions and Reward |
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