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P11D tips - Calculating the taxable value of benefits in kind under OpRA

22 February 2021

Published by: Michael Hepburn, Senior Manager – Employment Tax

Where an employee agrees to a reduction in gross pay in return for their employer providing a benefit of some kind (known as Optional Remuneration Arrangements – OpRAs), the way the benefit is valued changed from 6 April 2017. This includes cash allowances (such as a car allowance), flexible benefit packages with a cash alternative, and standalone salary sacrifice and salary exchange schemes.

However, as there are transitional rules in place it is possible that the benefit rules for some employees will still have been under the old rules for 2020/21. Arrangements between an employee and employer, which are binding on both parties and entered into on or before 5 April 2017, are protected until the earlier of:

  • Renewal, variation or modification of the arrangement, or
  • 6 April 2018 for most benefits, or
  • 6 April 2021 for cars, living accommodation and school fees.

How the OpRA rules work

Where an employee has an OpRA under the new rules, tax will be based on the higher of:

  • The amount of pay given up by the employee, and
  • The taxable value of the benefit in kind.

This applies to all benefits in kind, including those currently exempt except for some specific exclusions that include employer pension contributions, pensions advice, childcare vouchers and employer-provided childcare, cycles and cyclists equipment under the Cycle to Work scheme, and cars with emissions of 75g CO2/km or less. Note that where a cycle is provided under a Cycle to Work scheme before 20 December 2020, the requirement to undertake ‘qualifying journeys’ on the cycle is removed for 2020/21 and exemption can still apply. 

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If you found this article helpful, read more P11D tips on: Payrolled benefits? Don’t forget your P11D.