16 July 2018

Government amends OpRA rules to correct two tax anomalies

The government has published a draft Finance Bill, which details further changes to the rules on Optional Remuneration Arrangements (OpRA), which were first announced in the 2016 Autumn Statement.

The amendments address what the government calls “two anomalies” in the OpRA rules, by introducing legislation to:

  • Ensure that when a taxable car or van is provided through OpRA, the amount foregone, which is taken into account in working out the amount reportable for tax and National Insurance contributions purposes, includes costs connected with a car or van, such as insurance, which are regarded as part of the company car tax benefit-in-kind under ‘normal rules’.
  • Adjust the value of any capital contribution towards a taxable car when the car is made available for only part of the tax year.

The government said the proposed legislation would ensure that OpRA rules worked as intended, which, said tax advisers Deloitte in response to the first amendment in a business note, meant that the current practice of apportioning the ‘amount foregone’ for cars or vans would no longer be appropriate.

In response to the second amendment, Deloitte said the amount of capital contributions taken into account would be reduced proportionally from April 6, 2019 if a car was only available for part of the tax year.

The government said that both amendments were due to an oversight in the OpRA rules when legislation was first published.

Under the provisions of the current OpRA legislation, the value of any ‘connected costs’ was not included when calculating the value of the amount foregone for a taxable car or van, said the government, whereas they were deemed to be included within the modified cash equivalent rules, so that the comparison was not on a like-for-like basis.

Additionally, the second amendment aligned the approach with the car benefit charge, which made provision to adjust the level of a capital contribution if the car was made available for only part of the tax year.

Under the ‘normal rules’ for calculating the car benefit charge, capital contributions were automatically subject to pro-rata if a car was made available for only part of a tax year. However, similar provisions were not included in the OpRA legislation when first published, which meant that currently, the amount deductible for capital contributions where a car was available only for a part year was overstated.

The government said that following introduction of the new OpRA rules in Finance Act 2017, HM Treasury and HM Revenue and Customs (HMRC) were made aware of the anomalies and the decision was made to restore the intended legislative position. The 2018-19 Finance Bill, it said, was the first opportunity to make the amendments required. Both measures will take effect from April 6, 2019.

In publishing the policy paper announcing the changes, the government said: “This change is expected to affect a small number of the one million or so individuals who are provided with a company car or van. This is because marketing of separate arrangements for ‘connected costs’ is at an early stage and few employees make large capital contributions.

“These individuals will now pay the amount of tax and National Insurance contributions which Parliament intended would be due under OpRA that based on the greater of the modified cash equivalent of the benefit-in-kind and the amount foregone.”

In response, the British Vehicle Rental and Leasing Association, of which Activa Contracts is a member, said: “The BVRLA understands that members may be frustrated because this legislation will have an impact on business costs and accounting practices. The Association will seek further clarity on the legislation from HMRC and will call for a clear transition plan alongside confirmation that there will be no retrospective application of the regulation.”

  • Legislation is also being introduced in the 2018-19 Finance Bill to exempt from income tax and National Insurance contributions employees who use workplace electric vehicle recharging facilities to charge their privately-owned plug-in vehicles. The exemption applies retrospectively from April 6, 2018. Where employer-owned electric cars are charged at the workplace, there is already an exemption. The government said: “The measure will incentivise the take-up of cleaner, less polluting vehicles to support air quality initiatives. The government announced this measure to encourage employers to provide charging facilities for all-electric and plug-in hybrid vehicles at the workplace.”