Posted on 8th March 2019 at 17:28
Happy employees are productive employees, but different individuals require varying benefits with their remuneration package.
For example, Fred values a parking space close to work, but Mary prefers to have a bicycle, while Sid is attracted by a generous employer pension contribution.
If you offer Fred, Mary and Sid the same gross salary and allow them to sacrifice set amounts for the benefits they value, you could run into the tricky rules called optional remuneration arrangements (OpRA).
In essence, if employees forego some salary in order to receive a benefit, they are taxed on the amount of salary sacrificed rather than the value of the benefit.
There are exemptions from the OpRA rules for employer pension contributions and bicycles provided under a cycle to work scheme, which are both tax-free benefits. A parking space close to work is also a tax free benefit but it is not exempt from the OpRA rules. Mary and Sid will enjoy their tax-free benefits but Fred will be taxed on the salary sacrificed for the tax-free parking space.
The solution is not to offer Fred the choice of salary or parking space, but instead offer him basic salary plus parking space, take it or leave it. His employment contract will have to be carefully drafted to make it clear that no option was available.
Questions or queries?
Please do let us know if you have any questions or if you need any further help understanding the rules. – please call us on 01932 564098 or message us here.
Information correct at time of publication
This note was published from our Spring 2019 Tax Briefing dated March 2019, which is available here
Please be aware that the information above may have changed in subsequent months.
This note is written for the general interest of our clients and is not a substitute for consulting the relevant legislation or for taking professional advice.
Tagged as: Employee Benefits
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