Taxation to increase following changes to salary sacrifice legislation
Changes to OpRA rules confirmed which aim to correct a ‘mistake’ within the legislationTags: Corporate ECOS Taxation
Drivers and employers utilising Optional Remuneration Arrangements (OpRA) face higher tax charges from April 2019.
Chancellor Phillip Hammond has confirmed changes to OpRA rules which aim to correct a ‘mistake’ within the legislation and ensure that the rules work as intended.
When a company car is provided via a salary sacrifice arrangement, the amount foregone (the amount of salary sacrificed) is compared to the modified cash equivalent (value of the benefit received) and the greater value is reportable for benefit-in-kind and employer Class 1A NIC.
However, the 2017 Finance Bill which contained the original OpRA legislation did not specify any taxation on benefits connected to the vehicles of salary sacrifice company car drivers, such as insurance, maintenance packages, tyre replacement and breakdown cover.
Less than a year later, the 2018 Finance Bill has brought about an amendment, with HMRC stating that the omission of these associated benefits from the OpRA tax rules was an oversight.
As the value of connected costs were included within the modified cash equivalent rules but were not included in the calculation of the amount foregone, HMRC has taken the view that the comparison was not on a fair, like for like basis.
HMRC is currently consulting on the amendment, with the changes set to apply from April 2019.
Some existing agreements will be protected for a limited period of time with arrangements that were entered into before 6th of April 2017 exempt from the new rules until 6th April 2021 or alternatively when the contract ends, is varied, renewed or modified; whichever occurs the soonest.
CBS Employee Car Ownership Schemes (ECOS) are not affected by OpRA legislation and do not constitute salary sacrifice. As ownership of the vehicle is passed to the employee at the outset, company car tax and Class 1 NIC do not apply. The flexibility of an ECOS removes these associated restrictions and allows dealers to determine the level of benefit they provide.