The problem with OpRA

Optional Remuneration Arrangements (OpRA) were introduced last April to make the taxation of Benefits in Kind (BiK) fairer. However, the practicalities of operating these arrangements are not always straightforward.

OpRA applies to certain benefits where an employee forgoes cash in exchange for a BiK. These can be salary sacrifice arrangements, cash allowances or cash alternatives. Under the new rules in some circumstances where there is a cash option, the value of the benefit subject to tax is the higher of the earnings given up or the cash equivalent of the benefit.

“The comments from the ATT and others are that it [OpRA] doesn’t meet the simplification test and it is much more complicated,” explained Robert Woodward, Senior Manager - Tax Advisory at Saffery Champness LLP.

“You have the salary sacrifice element [of OpRA] and people generally understand that, it’s more about the negotiations of whether an employee is going to get salary or benefit and how things are caught with that. That makes it much more complicated and that issue hasn’t been addressed. The revenue guidance on that point isn’t very extensive either,” said Woodward.

Overall, the salary sacrifice part of the rules have been slightly more straightforward, with many employers removing the sacrifice element and offering a net deduction from pay instead. A good example of this is with regard to near workplace parking. Alternatively, some employers have simply removed the benefit altogether.

However, even where OpRA is being applied to a salary sacrifice scheme – such as for a mobile phone – although the tax break has gone, employers may still be able to leverage a good deal for their employees due to economies of scale. As such, the employee benefit may still be of value, despite the loss of the tax incentive.

More complicated issues arise with cash allowances and cash alternatives. Susan Ball, Partner, National Head of Employers Advisory Services at Crowe Clark Whitehill, explained that the main concerns surround employers who may not have realised that the legislation applies to other forms of optional remuneration, such as a car verses a cash alternative.

“I was speaking at an event recently and it was clear that some employers were still not fully aware of the changes with regard to cash alternatives, or that each employee’s position could be different due to when they joined and if any changes had occurred during the year,” said Ball.

“Particular issues have arisen around what should be considered a variation, modification or renewal, which triggers the ending of the grandfathering positions: employers do not think the rules are clear and HMRC have provided them with few instructions or examples to help make the process easier,” she added.

The process of reporting OpRA is a further area that needs consideration. Woodward explained that the new P11D references optional remuneration, but it doesn’t make it clear about which benefit value should be used.

“If you have a situation where a benefit is being provided through OpRA, the benefit value for P11D purposes is the higher of the salary sacrifice or the normal BiK value,” he said. “The P11D doesn’t make that clear at all.”

For those payrolling benefits, the assessment of which level a benefit should be taxed at will need to be done on an ongoing basis to ensure the correct amount of tax is being collected. This will need to be carried out for each employee and a record kept as an audit trail, putting an increased administrative burden on employers

“If you’re doing it on a P11D then that’s not so bad as you can just do it at the end of the year, whereas if you’re payrolling benefits you’ll have to do it on an ongoing basis,” said Woodward.

An HMRC spokesperson urged employers to review their remuneration packages to see if they are affected by OpRA. In particular, they should check whether employees joined during 2017/18 or whether they renewed or varied their arrangements during 2017/18, as they would have been subject to the news rules straightaway, and thus liable to pay tax on those benefits.

“When reporting BiKs to HMRC on the P11D, employers should take care to not just report the higher taxable amount, but report the other details required accurately. If they’re not reported correctly, it may result in the incorrect amount of tax being collected from your employee,” commented HMRC’s spokesperson.

“It’s particularly important for cars, where common mistakes are believing the car is not taxable (OpRA cars have always been taxable), or using the wrong CO2 emissions, mixing up capital contributions and private use payments, and not including the dates the car was unavailable,” added the spokesperson.

Although OpRA was introduced to help to simplify the taxation of BiKs and provide a level playing field, it is clear that the process is not as straightforward as it was intended and, despite HMRC’s efforts to communicate the change, many employers are still unsure about how to operate OpRA.

The Learn Centre is running a half-day course on OpRA to help employers implement the new rules. The course will give delegates the confidence to review all current and future salary sacrifice arrangements, and ensure they are compliant with the new rules and correctly reported to HMRC.

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