Optional Remuneration Arrangements (OpRA) - further clarification

Optional Remuneration Arrangements (OpRA) – further clarification

Tue 31 Jan 2017

In our last blog on optional remuneration arrangements, we discussed the draft legislation which was published on 5 December 2016 and what employers need to know. However, we discussed a number of areas where the meaning and application of the draft legislation was unclear.

We met with HMRC earlier this month, as an opportunity to seek further clarity, particularly on some of the more practical aspects of the draft legislation.

HMRC recognised that this would be a significant change for employers and we understand that further guidance will be provided shortly, particularly in respect of the transitional provisions.

What constitutes a contract ‘variation’

The draft legislation states that “…the reference to variation does not include any variation which is required only in connection with the replacement, because of accidental damage or otherwise for reasons beyond the control of the parties to the arrangements, of a benefit provided under the arrangements.”

It was clear that the way in which the contract has been written will be very important. For example, if the cost of the benefit(s) increases (i.e. the supplier puts their price up), then this would not be considered as a contract variation as it’s beyond the control of the parties to the arrangements.  However, what if the employee has a pay increase or a promotion which results in him/her becoming entitled to a car allowance or car during the year, is this considered as a variation? What about employees who have transferred to a new employer under TUPE regulations?

When is the ‘arrangement’ entered into?

The draft legislation states that “pre-6 April 2017 arrangements’ means arrangements which came into effect before 6 April 2017.” Clarity was provided in regard to the provision of cars where HMRC recognised that there could be a considerable lead time between placing a car order and its delivery.It confirmed that it would accept that the arrangement has been entered into when the vehicle is ordered, subject to the contractual wording. This is welcome news for employers. However, what about a new joiner who is unable to select benefits until after a successful probationary period?

HMRC still to provide clarity

There is still uncertainty around specific benefits to the extent to which they are considered as OpRA but also the actual calculation of the tax and Class 1A NIC due remains unclear. For example, if we take technology such as an iPad or another android device which is owned by the employer, the tax is currently calculated under s205 ITEPA 2003, and when the asset is transferred to the employee, usually at the end of the contract, the tax is calculated under s206 ITEPA 2003, effectively allowing an off-set against the tax already paid by the employee under s205. This is to ensure that the employee is not ‘double-taxed’ over the contract period. HMRC is considering whether the ‘off-set’ will continue to be applied under OpRA as strictly, the benefit won’t be taxed under S205 in the first place.

Also, it has been recognised that, whilst schools fees are protected under the transitional provisions until 2021, contracts are often renewed on an annual basis and as the draft legislation currently stands, this benefit will become subject to the new rules much earlier than anticipated. We understand that this was not the government’s intention, so we’re expecting clarity – and hopefully some amendments – in this respect.

There was also discussion in respect of deferred cash bonus arrangements where an employee could effectively sacrifice a bonus today, in return for something else in the future. Whilst the arrangement would be considered as an OpRA, how would an employer value ‘something else in the future’ in order to calculate the tax due based on the higher of:

  • the amount of earnings that the employee would have received if they had not taken the option of receiving the benefit; and
  • the otherwise taxable ‘cash equivalent’ value of the benefit in kind.


HMRC has confirmed that further guidance will be provided which is welcome news. However, the legislation is due to apply from April 2017 which is rapidly approaching and employers are telling us that time is running out to ensure that the necessary new processes and procedures are in place.

For more information, please contact me at vaneeta.khurana@mazars.co.uk or your Mazars Employment Tax or Employee Benefits contact.


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