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Employers’ newsletter - salary sacrifice

Salary sacrifice or Optional Remuneration Arrangements apply to any employee who in their employment contract is offered the alternative of cash or a benefit in kind.

Under the rules the taxable benefit is determined to be the higher of the cash sum sacrificed or the level of benefit in kind arising, for example on the company car. This can mean that the taxable sum on the benefit is significantly increased over the amount that has historically been the case.

For example, if an employee is offered a cash alternative to a company car of £6,000 per year, or a particular company car on which the benefit in kind is say £2,000 they will, under the optional remuneration arrangement, be taxed on the greater of £6,000 (the cash allowance) or £2,000 (the benefit in kind on the company car they are provided with). That particular employee would face an unwelcome increase in the tax they will pay if they have exercised the option to take the car rather than the cash.

The rules have been generally in force only since April 2018 so this is the first year for reporting such arrangements on forms P11D.

Employers need to ensure they have the additional information they will need for the forms P11D and will need to alert those employees who are impacted.

If you would like further clarification on this matter, please get in touch.



Date: 27th March, 2019
Author: David Hadley


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