Government clarifies OpRA rules to end ‘connected costs’ anomaly
Almost two years after the government first announced tax
changes to car salary sacrifice schemes and car or cash allowance programmes -
now known as Optional Remuneration Arrangements (OpRA) - the government has
clarified ‘connected cost’ rules in the newly published Finance Bill.
Supporting documents to the draft 2018/19 Finance Bill,
which has been published following last month’s Budget Statement, make clear
that “when a taxable car or van is provided through OpRA, the amount foregone
includes costs connected with the car or van which are regarded as part of the
benefit-in-kind under normal rules”.
The ‘explanatory note’ highlights vehicle insurance as an
example, but it also includes the costs associated with the provision of
vehicle breakdown and recovery, service and maintenance and tyres and all other
related “connected costs” that keep a vehicle on the road with the exception of
Initially, legislation suggested that such ‘costs’ were
excluded under OpRA rules. However, fleet industry discussions with HM Revenue
and Customs (HMRC) to seek clarification on OpRA, which came into effect on 6
April, 2017, highlighted what officials called “anomalies”.
The ‘explanatory note’ says that when the OpRA legislation
was originally introduced “an oversight meant that no provision was made to
ensure the calculation of the amount foregone for a taxable car or van should
be the total amount foregone, including any connected costs”.
Explaining the legislative clarification, the ‘explanatory
note’ continued: “This provides that the total amount foregone, which is to be
taken into account in calculating the amount reportable for tax and NICs
purposes, includes both the amount foregone with respect to being provided with
the car and the amount foregone with respect to the costs connected with the
car (such as insurance), which are regarded as part of the benefit in kind
under normal rules. The cost of a driver and fuel are not to be included as
these are chargeable under separate provisions.”
Industry estimates have suggested that for those drivers
affected, it could cost them an additional £100-240 in tax per year. Employers
will also pay additional Class 1A National Insurance.
The 2018/19 Finance Bill also makes clear that where a
taxable car is provided through OpRA for only part of a year a pro-rata
deduction applies to the value of the capital contribution just as is normal
under company car benefit-in-kind tax charge rules. Again that provision was
not included in previous legislation meaning that where a taxable car is
provided through OpRA, the amount deductible for capital contributions is
overstated where a car is available only for a part year.
OpRA was designed to mean employees opting for a salary
sacrifice arrangement or taking a company car in lieu of a cash alternative
paid tax on the higher of the existing company car benefit value and the salary
sacrificed or cash allowance given up. However, car arrangements in place
before April 6, 2017 are protected until April 2021 and ultra-low emission
vehicles (ULEVs) - currently those with CO2 emissions of 75g/km or less - are
exempt from the regulation.
The amendments are effective from the start of the 2019/20
tax year onwards.