With the 2017/18 tax year now over, it is time for employers to turn their attention to reporting the expenses and benefits that they have provided to their staff on forms P11D. The deadline for reporting to HMRC is 6 July and now there is a new area to take into consideration.
Unfortunately not a gentle aria to soothe our souls!
The rules around salary sacrifice have been somewhat tightened up to provide for a different, and potentially more expensive tax outcome where an employee is able to give up an element of his or her earnings (generally under a salary sacrifice arrangement) in exchange for a benefit. Optional Remuneration Arrangements, or OpRA for short, are new for 2017/18 and will potentially provide a worse tax position where the tax due on the element of salary given up exceeds the tax due on the replacement benefit provided.
There are some benefits which will be excluded from the new rules and can therefore continue to be provided in conjunction with a salary sacrifice arrangement:
- Childcare vouchers,
- Pension contributions
- Some ultra-low emission cars
These will continue to receive the full advantages available under salary sacrifice.
Where an employee has given up the right to an element of earnings in exchange for a benefit it will be the higher of the cash equivalent value of the benefit in kind, or the amount of cash foregone which will need to be reported.
The new rules apply where an agreement is entered into after 6 April 2017 or the existing one is varied.
Any agreements in place before this date will not therefore have the new rules applied until the earlier of:
- The date the contract ends, or is amended, modified or renewed, and
- 6 April 2021 for cars exceeding CO2 emissions of 75g/km, school fees and living accommodation
- Or 6 April 2018 for any other benefits.
The reporting of expenses and benefits provided to employees has always been a complex process with the risk that HM Revenue & Customs will pick up on any inconsistencies. This can of course lead into a more general review of a business’ tax affairs which is of course best avoided. The new rules around OpRA add a further layer of complexity and it is certain that HMRC will be examining such arrangements carefully where they become aware of them.
Caution is needed – returning to the opera theme it is not all over until the fat lady sings!
You can contact the employment taxes team at Wilkins Kennedy, to see how we can help.