Salary sacrifice / optional remuneration package benefits in kind tax changes from 6 April 2021

The Optional Remuneration Arrangements (OpRA) rules were introduced on 6 April 2017 and changed the tax position for employees receiving most benefits via a salary sacrifice arrangement, or instances where there is an option between the employee receiving either a cash or benefit as part of their package.

Under the OpRA rules such arrangements are subject to tax based on the higher of the salary foregone and the tax charge that would arise on the benefit.  For example, if the benefit is one that is exempt from tax, the sacrificed/forgone salary would be the amount taxable (unless an OpRA exemption applies) for the arrangement, even though the benefit received is normally exempt from tax.

Certain benefits were carved out of the initial changes and deferred to become fully effective from 6 April 2021 so long as before that date the arrangements were not varied, renewed or modified from the pre 6 April 2017 arrangement. These benefits included:

  • Company cars with emissions more than 75g/km.
  • Company vans.
  • Fuel for the above.
  • Living accommodation.
  • The payment of school fees.

Certain other benefits are exempted from the OpRA rules so that the old position effectively continues to apply to these.  Amongst others these benefits include:

  • Company cars with emissions less than 75g/km.
  • Employer pension scheme contributions.
  • Cycle-to-work schemes.
  • Employer-provided childcare.

The OpRA exempted benefits above continue to be exempt following 6 April 2021.

The post 5 April 2021 position

From 6 April 2021, all arrangements unless specifically exempted (as above) where salary is given up for a benefit will be subject to the OpRA rules and the arrangement will be taxed at the higher value of:

  1. The taxable value of the benefit if any; or
  2. The amount of cash foregone.

An example of the change for those arrangements taking effect from 6 April 2021 is seen below:

benefits in kind image 1

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