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HMRC internal manual

Employment Income Manual

Optional remuneration arrangements: general exclusion from exemptions

Sections 203A, 205 and 206 ITEPA 2003

From 6 April 2017, the Income Tax and NICs advantages where benefits are provided through arrangements in which the employee gives up the right to an amount of earnings in return for a benefit are largely withdrawn. Guidance on optional remuneration arrangements from 6 April 2017 starts at EIM44000.

Transitional provisions apply for a limited period. For further details see EIM44030.

Benefits that are provided through optional remuneration arrangements from 6 April 2017 (subject to the transitional provisions) are not covered by existing exemptions within Part 4 of ITEPA 2003 except in certain limited circumstances. Those circumstances are where the exemption is an ‘excluded exemption’.

Value of the benefit

When a benefit which is subject to the optional remuneration arrangement rules would otherwise be exempt from tax, the value of the benefit to compare with the amount foregone in determining the taxable amount is deemed to be nil. Therefore, the taxable value of the benefit is the amount foregone.


An employee sacrifices salary of £360 per year for a mobile phone. The benefit would otherwise be exempt from Income Tax under section 319 ITEPA 2003. The exemption does not apply because the benefit of the phone has been provided under optional remuneration arrangements. The cost of the benefit is deemed to be nil so the value of the benefit to treat as earnings from the employment is £360.

Special case exemptions

There are also a number of exemptions within Part 4 that already have specific salary sacrifice rules and you should continue to apply those rules, rather than the optional remuneration arrangement rules, in determining whether the benefit is exempt. These are known as special case exemptions.