Payroll insight
be taken when calculating these benefits in future. Under the new rules any scheme involving salary sacrifice will transition into an OpRA where a salary exchange arrangement begins for the first time or reaches a renewal or modification point (‘the trigger point’). Where there are no changes or modifications, there is an automatic transition to OpRA for any arrangements in place on 6 April 2018. It should be noted that the three types of salary exchange that are carried through the transitional arrangements to 2021 are: living accommodation benefit; school fees (special arrangements apply); and cars with emissions more than 75g/km of CO2. The diagram explains how the transition from salary sacrifice to OpRA works between 2017 and 2021: Note that all benefits in kind provided under normal conditions (i.e. in addition to pay), are not affected by OpRA and should be declared via a P11D return in the usual way. Even exempt benefits, such as health screening, need to be considered because if they are paid under a type B arrangement, the amount foregone by the employee may well need to be declared via P11D, with a corresponding class 1A NICs charge. All OpRA benefits are liable to class 1A NICs so that the NICs rules continue to mirror the income tax rules as with other areas of employment taxation, including for valuation and exemption purposes. A year on, it is interesting to see how the payroll industry has reacted to the changes. All those providing benefits which now fall under the OpRA regime will have submitted their first set of P11D returns with the benefits reported on them – or they may have chosen to payroll the benefits. According to HMRC, in a July 2018 report which provides only provisional figures for 2016/17 (https://bit.ly/2wzl6eT), the tax and NICs generated from payrolling benefits is estimated at around 11% of all benefits- in-kind related income. This percentage
is generally thought by the tax profession to be as low as it is because payrolling is still unattractive to employers due to restrictions on what can be payrolled, and the fact that anything which cannot be payrolled must still be returned via the P11D. Therefore, it is thought to be only those employers providing benefits capable of being payrolled and no more that pursue the payrolling option.
essential requirements. Fleet managers, living accommodation managers and anyone else involved in the provision of benefits need to understand the new rules and comply. HMRC’s employer compliance officers will be very interested in those who are not. It would be helpful for all employees in the business to be informed and educated by a suitable communications programme so that they fully understand and trust what is happening to their pay. Finance departments, directors and senior accounting officers in large businesses will also need to understand the new reporting requirements and have systems in place to ensure the new calculations are correct. OpRA is here to stay. Time will tell as to whether the measures have resulted in higher revenue receipts for the Exchequer – although measuring success may be tricky as pinning the receipts down to specific areas of remuneration planning will be challenging. The data kept by HMRC on salary sacrifice is somewhat patchy due to the lack of information in this regard on employer returns. It would be difficult to compare this data to any future regime because employers do not have to ‘sign up’ to OpRA – they just transition from one regime to the other. n Changes to rules for taxable cars and vans Proposed measures in the next Finance Bill will address two anomalies in the OpRA rules, by introducing legislation to: ● ensure that when a taxable car or van is provided through OpRA, the amount foregone, which is taken into account in working out the amount reportable for tax and NICs purposes, includes costs (e.g. insurance) connected with the vehicle which are regarded as part of the benefit in kind under normal rules ● adjust the value of any capital contribution towards a taxable car when the car is made available for only part of the tax year.
...hard to distinguish between
type A and B arrangements
Various reports suggest that issues around the added complexity in the legislation and the treatment of cash and non-cash allowances is confusing for employers as they find it hard to distinguish between type A and B arrangements. Issues around employees who are on the cusp of a tax band mean that some employees will find themselves in a higher tax bracket because of the measures – in Scotland there are now five bands to consider – which adds to the complexity and the interaction with other issues such as universal credit, tax credits and pensions. Conclusion It is important that employers understand the new arrangements and make moves to realign their offerings to achieve optimum tax efficiency for themselves and their employees. Staff handbooks, policies and procedures, remuneration committee decisions and employment contracts will need to be amended accordingly – all with the agreement of employees, to avoid dissatisfaction and loss of engagement, morale and productivity. Identification of all relevant benefits and tracking of key trigger dates are Existing schemes for cars, vans, fuel, living accommodation and school fees (set up prior to 6 April 2017) can continue to April 2021 All other new and existing schemes must be closed except pensions, cycle to work and child care April 2018
April 2017
April 2021
All schemes continue to earliest of next trigger point, or April 2018, unfettered
Pensions, cycle to work, child care and ultra-low CO2 cars (75g/km) continue indefinitely
Prepare for 2018 & 2021 phasing out/ transitional arrangements
Schemes for all other cars, vans, fuel, living accommodation phased out
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| Professional in Payroll, Pensions and Reward |
Issue 44 | October 2018
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