Following the changes to Optional Remuneration Arrangements (OpRA), which came into effect in April this year, HRMC has updated the Salary Sacrifice for Employers guidance – and it looks as though a lot of the previous tax advantages have been withdrawn.
Salary Sacrifice for Employers explains to employers how to set up an arrangement, as well as calculate any tax and NI contributions that are due. Since 6 April this year, rules that favoured income tax and NI advantages relating to salary sacrifice, cash allowance and flexible benefit packages under OpRA have been largely withdrawn.
If you provide benefits to your employees in exchange for salary sacrifice, or salary exchange, then you will need to know about these changes and how they are likely to affect your staff.
The benefits received by employees can be either taxable or tax exempt as the changes can affect anything from cars to workplace parking. However, these changes do not apply to pension contributions, childcare vouchers, workplace nurseries, directly employer contracted childcare, cycle to work or cars with CO2 emissions of 75g/km or less.
Where a benefit was previously provided as part of OpRA, this will no longer apply. The taxable value of the benefit will be under the usual Benefit in Kind rules or the higher of the current value of the benefit, or the cash equivalent that was paid at the time. It is this value you will need for calculating Income Tax and Class 1A NICs. Employers will report different taxable values in many cases on the new P11D.
If there was a Benefit in Kind provided through OpRA that would otherwise qualify for an exemption, this exemption will no longer apply.
Existing arrangements set up before 6 April 2017 will be affected by these new rules in 2018 or 2021 depending on the benefit, but most will be automatically subject to new rules from 6 April 2018. It is important to note that you will need to immediately use the new rules for any employee starting a new contract after 6 April 2017 – and this applies to all new recruits.
You can view the update guidance here, or if you have any further questions, you can contact the payroll team at Wilkins Kennedy, who would be happy to help.