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How does the salary sacrifice scheme work with the P11D form?

by Thomas Nock Martin | May 08, 2019 | Tax

salary sacrifice scheme

The P11D deadline for the salary sacrifice scheme is almost upon us for 2018/19. However, it’s likely that this is the first time as an employer that you will have to include benefits provided to your employees through a salary sacrifice scheme. So if you’re asking yourself ‘how does the salary sacrifice scheme work?’ read on to get a deeper understanding.


What is OpRA?

OpRA is the name given by HMRC for a salary sacrifice scheme and stands for optional remuneration arrangements. This means employees will have their salary deducted in exchange for benefits in kind. The advantage of salary sacrifice is that the tax and NI payable is less than that which has been deducted. Anti-avoidance rules which cancel any tax and in part NI savings have been in place since 6 April 2017. However, OpRAs in place before this date weren’t caught by the anti-avoidance rules until the following year. What this means is for a lot of businesses, 2018/19 will be the first year OpRA-related benefits will need to be reported using the P11D form.


What exactly needs to be reported?

Here’s what you need to know; the figure you need to report on the P11D form is the greater of the taxable value of the benefit in kind using the same rules that apply normally but discounting exemptions, and the pay that what was deducted from the employee in exchange for the benefit.

Here’s an example of how it would work:

Olly works for Acom Ltd. In March 2017 he exchanged £60 per month of his salary in return for Acom providing him with a mobile phone, which is a tax and NI exempt perk. Acom pays £50 per month under a business contract for the phone. However, because of the OpRA rules the exemption is ignored from 6 April 2018. This means it must report on Form P11D the greater of the taxable amount, i.e. £600 (£50 x 12) and the salary Olly gave up, i.e. £720 (£60 x 12).


What to watch out for in the salary sacrifice scheme

For a salary sacrifice scheme, if the benefit provided is a company car, the rules have recently changed – these changes are based around when it comes to valuing the salary given up and the taxable value of the benefit. The good news is they do not take effect until next year, so do not need to be accounted for in the 2018/19 P11Ds.


How do I complete the form?

The P11D form has dedicated sections for the different types of benefit in kind, which means all you need to do is complete the appropriate boxes with the taxable amount according to the HMRC OpRA rules. Remember not to confuse perks with benefits, perks would be exempt but for the OpRA rules (like Olly’s phone). If this applied, you would enter details in section M – “Other items”.


What not to include

Benefits in kind that you have already added through payroll need to be excluded from form P11D i.e. the tax has been collected through employee’s salary by increasing PAYE for tax purposes. This is applied to benefits caught by the OpRA rules as well as those that aren’t.


Making good

Making good is when an employee contributes towards the cost to you, of providing a benefit, this cost should be deducted from the amount you report on the P11D. For accurate reporting you will need to deduct the amount made good from the taxable amount of the benefit and the salary sacrificed by the employee, and report the greater of the two.


Get in touch today

If you still have questions about the salary sacrifice HMRC scheme or would like support managing your P11D form, contact Thomas Nock Martin accountants today.  Our team will be happy to talk to you and offer our expert accountancy services from the West Midlands so call us on 01384 261300. Alternatively, to find out more expert advice about a salary sacrifice scheme, head to our website today.

If you have found this blog helpful, you may wish to read our previous blog on Making Tax Digital.