The rules for valuing a benefit in kind provided by way of a salary sacrifice changed on 6 April 2017, but not many employers are aware of the implications as there has been very little publicity by HMRC.
To confuse employers further HMRC no longer uses the term “salary sacrifice”, but refers to those arrangements as optional remunerational arrangements (OpRA). It has released draft guidance on OpRA which will be incorporated into the Employment Income manual.
Where an employee gives up part of their salary entitlement in order to receive a benefit, which is not a protected benefit, the benefit must be valued at the level of the salary foregone, rather than using the normal benefit valuation rules. This could be that a tax exempt benefit, such as a mobile phone becomes taxable, if the employee sacrifices some salary in order to receive it.
The protected benefits are:
- pension contributions and pensions advice,
- counselling and other outplacement services;
- retraining costs, such as a result of redundancy;
- employer supported childcare, including vouchers and workplace nurseries;
- bicycles and safety equipment as part of cycle to work scheme; and
- ultra low-emission cars (up to 75 g/km).
There is a temporary reprieve for benefits which were provided under an agreement which was in place before 6 April 2017. Those benefits continue to be valued under the existing rules until 6 April 2018, or until 6 April 2021 for school fees, accommodation and cars which are not ultra low-emission.
There is a potential trap for employees who negotiate a new contract to change or vary their benefit in kind on or after 6 April 2017.