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Salary sacrifice - further update

22nd March 2017

Following the Spring Budget HM Revenue & Customs (“HMRC”) has published their updated guidance in respect of the Optional remuneration arrangements (“OpRA”) which are due to come into effect from 6 April 2017.

Changes made to the draft legislation

Following the representations made to HMRC, changes have been made to the draft legislation as it specifically relates to school fees. Where the benefit provided comprises either a place at the school based upon reduced school fees or a free place at a fee paying school, so long as the original arrangements are entered into by 5 April 2017 then the transitional provisions will continue to apply until 5 April 2021 provided the new arrangement (contract) relates to:

  • The same employment with the same employer;
  • The same school; and
  • The same child.

This is good news for both the school and the employee as the risk of the arrangement coming to an end early owing to a renewal or variation of the arrangement has been considerably reduced. However, it is important that schools act now and most certainly by 5 April 2017 to ensure the most advantageous position can be protected for an employee who is entering into a school fees salary sacrifice arrangement.

Nothing for prospective employees

The updated legislation and guidance has not been extended to include prospective employees. Consequently, any employee joining the school after 5 April 2017 will be fully within the OpRA legislation and will be subject to tax on the greater of:

  • The salary sacrificed; or
  • The cost to the employer in providing the benefit.

The same rules will apply for any employee who wishes to enter into a salary sacrifice for the provision of a place at the school but after 5 April 2017.

Key action points

The following are the key action points to be undertaken by 5 April 2017:

  1. Carry on as normal with existing employees who only have one child in the arrangement;
  2. Where the employee has more than one child at the school, use the deed of variation to “split” the existing arrangement to reflect the circumstances for each child. The position for each child will continue until April 2021 with the ability to be able to vary the value of the amount sacrificed and the benefit each year;
  3. Ensure the agreement is between the school which is providing the benefit of a place at the school and the employee; and
  4. Where a child is due to start at the school in September 2017, agree a salary sacrifice arrangement which must be in place (using existing documentation) by 5 April 2017.

Whilst the legislation still needs to be reviewed by the Parliamentary Finance Bill sub-committee it is unlikely it will be the subject to any further material amendment.  If you have any questions, please contact Nick Bustin, Director of Employment Tax on 0207 969 5578 or via email: