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Optional Remuneration Arrangements – what do the changes mean?

Optional Remuneration Arrangements – what do the change

Salary sacrifice rules coming in from April 2017 have generated a lot of scrutiny as firms seek to revise and refine their current offering.


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The proposed changes to the salary sacrifice rules coming into force from April 2017 have generated a lot of discussion over the last few months as organisations seek to understand how the changes impact the benefits they offer to employees. This article provides an update on the Government’s proposals in relation to the way in which benefits will be taxed when provided via an Optional Remuneration Arrangement (OPRA).

What's the impact?

To briefly recap on the scope of the proposals, the rules go further than catching traditional salary sacrifice arrangements and apply in any situation where an employee is given the option between a benefit and cash. What has come as a surprise to many is that this includes company car drivers who are given the option between a cash allowance and a car.

Pensions, childcare, cycle to work schemes and ultra-low emission vehicles (ULEVs) have all, however, been confirmed as being excluded from the proposed changes and continue to provide tax and/or NIC savings.

For other benefits under OPRA, employees will be taxed on the higher of the current benefit-in-kind charge or the amount of salary sacrificed.

In practice many benefits will not be impacted by the changes where the amount sacrificed is equal to the cost of providing the benefit and the benefit has not previously been covered by a tax exemption. This is typically the case for benefits such as private medical insurance, travel insurance, dental insurance, external gym membership etc. Such benefits will continue to receive employee NIC savings together with the wider advantages such as access to corporate buying power.

The benefits which will feel the greatest impact are those which are currently exempt from tax such as workplace car parking, work related training and in-house gyms. Clarification is still required from HMRC in respect of benefits such as Life Assurance, Income Protection and Authorised Mileage Payments.


The draft legislation applies from 6 April 2017. However, there are grandfathering provisions to protect arrangements already in effect prior to this date:

  • Arrangements involving cars, living accommodation and school fees will be protected until April 2021; 
  • All other arrangements will be protected until 5 April 2018.

It should be noted, however, that any renewals or variations made on or after 6 April 2017 (with limited exceptions) will result in the loss of the grandfathering protection.

HMRC clarification

Following the release of the draft legislation on 5 December 2016, HMRC have held a small number of meetings with representatives from industry and the accountancy profession to discuss the draft legislation and the intended outcome of its application.

The meetings have provided some useful clarification in respect of certain areas, including:

  • Effective date - HMRC have confirmed that, for the purpose of the grandfathering provisions, the effective date should be taken to be the date the salary sacrifice is legally agreed;
  • Core benefits - it has been confirmed by HMRC that it is their intention to capture under the new rules the element which is capable of being exchanged for cash meaning where there is a flex up or down opportunity to increase/decrease a core benefit's cover, only the flex up or down element will be caught. The core benefit would not be ‘tainted’ by the additional flex option; and
  • Making good - HMRC acknowledged that this was an omission from the draft legislation and the final legislation will be updated to incorporate relevant provisions.

If you have any questions or want clarification on any of the issues above then please do get in touch with your usual contact.


For further information please contact :

Ian Goodwin

James Newton


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