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Car Allowances v Company Cars – OpRA rules

22/04/2021
long-road
If you offer employees a car allowance or company car your arrangements may be impacted by the rules on Optional Remuneration Arrangements (OpRA).
The car benefit charge for a car 'provided' after 6 April 2017 under OpRA is now the higher of the:
  • Normal Benefit Charge (list price x appropriate % based on CO² emissions and fuel type)
  • amount of salary forgone in relation to the benefit.
You needed to use the new rules from 6 April 2017:
  • for any new employees
  • where an arrangement between the employee and the employer is varied in the terms of the Benefit in Kind
  • where the arrangement is renewed
  • when the grandfathering provisions lapse.

All car arrangements entered into before 6 April 2017 are covered by the grandfathering provisions and will move into the new rules from 6 April 2021, unless they are varied or renewed before then, in which case the new rules will apply from the date of the change.

Example
An employee gives up the right to a cash allowance of £5,000, the amount forgone, in exchange for a car with a cash equivalent of £3,500. As the car is provided under an optional remuneration arrangement, the taxable value of the benefit is £5,000. Because of the leasing arrangements, the employer requires the employee to sign up to the arrangement for three years. The employee has agreed to give up the cash allowance for three years and the agreement will be subject to the optional remuneration arrangement rules for that period. More information can be found in the HMRC Employment Income Manual.

Car Allowance

If the cash allowance you provide is made up of separate and distinct elements then under OpRA, for a car that is over 75g/km, you may only need to compare:
  • the allowance relating solely to the car (and not any of the other benefits e.g. insurance, maintenance or breakdown costs)
  • the normal car benefit charge for the car (list price x CO2 percentage) to determine which of the two is the 'higher of' value – this higher of value then becomes the taxable benefit value for the car.
Example
An employee gives up the right to a cash allowance of £5,000 ( made up of a number of separate elements as outlined in the car policy documents and employee’s contract) in exchange for a car with a cash equivalent of £4,500. As the car is provided under an optional remuneration arrangement, the taxable value of the benefit is the amount of the car benefit under the normal rules, which in this example is £4,500 compared with the specific amount of the cash allowance relating to the car which in this example is deemed to be £4,000. Accordingly the benefit in kind is £4,500 as this is the higher amount.

Conclusion

It is important that your policy documents clearly set out how your car allowance is made up and you are able to support any breakdown in the various elements of the cash allowance. If you wish to consider amending or restructuring your scheme to so that only the element which relates to the car is compared under these new rules or to discuss your car scheme / the new OpRA rules in more detail please do get in touch with us.

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Recent initiatives introduced by the government move towards electric vehicles in the UK. What are the benefits?
How the need for home-working has impacted employment tax.

We have provided four key tips to be aware of when submitting your CJRS claim.

Contact us

Andy Hamman
Andy Hamman
Director, Employment Tax
London