Salary sacrifice – referred to as Optional Remuneration Arrangements (OpRA) in recent government documents – is a mechanism whereby the employee gives up cash salary in return for a benefit which is taxed more favourably than cash salary, or where an employee is offered a cash alternative to a benefit. The final legislation is likely to be agreed in the Budget on 8 March 2017.

Simply, the income tax and employer NICs advantages of salary sacrifice arrangements/OpRA will be removed from 6 April 2017, except for employee pension contributions, childcare vouchers, the bike to work scheme, holiday and a few other minor benefits.

It should be noted that any arrangements where an employee has the option of taking a cash salary in lieu of a benefit are also caught by the changes.

The proposed change to the legislation will result in a benefit in kind (BiK) provided through OpRA after 6 April 2017 being chargeable to income tax and NICs, even if it is normally exempt from tax and Class 1A NICs, at the greater of the amount of salary sacrificed, and the cash equivalent set out in statute (if any).

However, where an agreement is in place prior to 6 April 2017, it is proposed that the income tax and NICs treatment will be protected (grandfathered) for a specified period. The length of this period will depend on the type of benefit in kind which is provided under the salary sacrifice arrangements. In such circumstances, the timing of the changes will be as follows:

• For company cars (with Co2 emissions above 75 g/km), accommodation or school fees, the earlier of when the salary sacrifice arrangement is renegotiated, revised or reviewed and 6 April 2021
• For other BiKs, the earlier of when the salary sacrifice arrangement is renegotiated, revised or reviewed and 6 April 2018

For more on Salary Sacrifice schemes, click here.