Income Tax: reporting the taxable value of a benefit in kind received under an optional remuneration arrangement
Published 21 December 2017
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Who is likely to be affected
Employers who provide benefits in kind to their employees in conjunction with optional remuneration arrangements and their payroll and payroll software providers.
General description of the measure
The measure will introduce a Statutory Instrument to allow HM Revenue and Customs (HMRC) to make changes to the Pay As You Earn (PAYE) regulations so that employers can report the taxable amounts where an optional remuneration arrangement (OpRA) is in place.
The changes are necessary to deliver aspects of the policy measure that was originally announced at Autumn Statement 2016. OpRAs have previously been referred to as ‘Salary Sacrifice’.
Policy objective
Schedule 2 of the Finance Act 2017 introduced legislative changes where a benefit in kind (BiK) is provided in conjunction with an optional remuneration arrangement. The taxable amount will be the greater of the BiK calculated under normal rules or the amount given up. The OpRA changes increase fairness so that where an amount of cash is given up in respect of a BiK the same amount of tax will be due.
As the amount will be the greater of the BiK calculated under the normal rules and the amount given up, the PAYE regulations are being updated to clarify the taxable amounts that need to be reported to HMRC either via Real Time Information (RTI) or on an annual or quarterly return.
Background to the measure
The Finance Act 2017 introduced legislation to remove the tax advantages of OpRAs. These arrangements are where an employee gives up cash pay in return for a BiK, which was usually taxed on an amount lower than the pay given up, or left untaxed. So now, where a BiK is provided in conjunction with an OpRA, the taxable amount will be the greater of the BiK calculated under normal rules or the amount of the salary sacrificed.
This new legislation applies to all benefits in kind, except for pensions, childcare, cycle to work and ultra low emission cars. The legislation sets out the protected benefits, the transitional rules and the method of calculating the taxable benefit where these rules apply.
Detailed proposal
Operative date
The changes will have effect on and after 6 April 2018.
Current law
Part 11 of ITEPA provides for the PAYE system, where employers deduct income tax at source from employees’ salaries. Part 11 requires HMRC to set out the detailed provisions for PAYE in Regulations. These are the Income Tax (PAYE) Regulations 2003 (2682) “the Regulations.”
Schedule 2 of Finance Act 2017 introduced a new section, 69A, into Income Tax (Earnings and Pensions) Act 2003 which removes the tax advantages of optional remuneration arrangements.
Proposed revisions
The changes to the PAYE regulations will be introduced at April 2018 and will provide the mechanism for employers who use OpRA to report these benefits in kind. They will confirm the taxable amounts that will need to be reported to HMRC on an annual or quarterly return or through RTI.
Summary of impacts
Exchequer impact (£m)
| 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 |
|---|---|---|---|---|---|
| - | nil | nil | nil | nil | nil |
This Statutory Instrument is not expected to have an Exchequer impact as it allows HMRC to make the regulatory changes associated with a previously announced measure.
The Exchequer impacts of the previously announced measure are set out in Table 2.2 of Spring Budget 2017 as “Salary Sacrifice: remove Tax and National Insurance contributions advantages” and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2016.
Economic impact
Impact on individuals, households and families
The changes have no impact on individuals and are not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that this measure will impact on any group with protected characteristics.
Impact on business including civil society organisations
This measure will affect employers who provide benefits in kind to their employees as part of an OpRA. One-off costs are expected to be negligible, and involve familiarisation and updating systems. There will also be a requirement to complete a new field on the P46 (CAR) form. Employers will be required to populate this field when reporting changes to an employee’s car. Ongoing costs are expected to be negligible.
Operational impact (£m) (HMRC or other)
The additional costs and savings for HMRC in implementing this change are anticipated to be negligible.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions please email: employmentincome.policy@hmrc.gsi.gov.uk
Declaration
Mel Stride MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.