Professional June 2022 (Sample)

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The CIPP's Advisory Service team provides answers to popular questions

Company cars and salary sacrifice Q: A client processes a scheme which allows employees to choose either a company car or a cash allowance. They were advised that several employees have taken up a company car above their entitlement and the excess value will be processed under a salary sacrifice arrangement. My client will process a salary sacrifice pay element for the amount, which will be evenly apportioned over the months in the tax year. How does this arrangement affect P11D reporting? A: Your client is operating a type B arrangement under the optional remuneration arrangements (OpRA) rules, alongside a traditional salary sacrifice. Type B arrangements are arrangements in which the employee is given the option of being provided with a benefit in kind (BIK) or a cash allowance. However, with type A arrangements (salary sacrifice), an employee agrees to be provided with a benefit rather than an amount of contractual pay. A good example of where a choice has been given under a Type B arrangement would be the provision of a company car or a cash allowance. Where a benefit is chosen, for example, a company car instead of the cash pay, the taxable value of the reportable benefit is the higher of the amount of cash given up under the OpRA or the taxable value of the company car, calculated under the normal BIK rules. Where the two are the same, the normal benefit valuation rules are applied. This requirement doesn’t change whether the arrangement is type A or type B.

In this example, guidance available on GOV.UK is helpful, as the employees in this scenario have both type A and type B arrangements: “Some employees have both type A and type B arrangements under which a benefit is provided partly in exchange for the employee giving up an amount of salary and partly in exchange for giving up the option of a cash allowance. Where this is the case, the amount foregone is the total value of the type A and type B arrangements. Example 2 An employee has the option of a cash allowance of £5,000 (type B) which he decides to give up for a car. However, the employee wants a higher specified model costing a further £1,000. So, he also gives up £1,000 of salary (type A). The amount foregone is £5,000 plus £1,000.” See http://ow.ly/BKFo30snxAM for reference. Ultra-low emission vehicles (ULEVs), with a CO2 emissions figure of less than 75g/km are exempt from OpRA rules – in this case, you would report the cash equivalent of the benefit on the P11D, without needing to refer to the car allowance or salary sacrifice. For reference, see: https://bit.ly/3pZjesl. Death during service payments Q: An employee sadly passed away, and we’re considering making a payment to the family outside of the normal final payments and death benefits already made. Are we able to treat this payment as a tax-free termination payment?

How do company cars and salary sacrifice arrangements interact?

A: When a payment is made for death in whether the payment is chargeable under Section 394 of ITEPA 2003 as a relevant retirement benefits scheme (EFRBS). By deciding to make a payment directly to the family after all final payments due to the employee under their contract of employment (or in relation to any terms under any pension arrangements, for example), the employer has created an EFRBS. Therefore, the payment becomes a relevant benefit and is taxable on the recipient as employment income. For reference, see: https://bit.ly/34yKtCC. In rare circumstances, a termination payment may be an excluded benefit. You would need to determine if the payment is exempt from tax under Section 406 of ITEPA 2003.

| Professional in Payroll, Pensions and Reward | June 2022 | Issue 81 6

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