OpRA changes to address anomalies

HMRC has published a policy paper outlining changes to Optional Remuneration Arrangements (OpRA) rules for taxable cars and vans.

The paper has been published to address two anomalies in the OpRA rules that concern connected costs with the car or van and capital contributions towards a car. Specifically, the new measures will:

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 the car or van (such as insurance) which are regarded as part of the 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.

Where a car or van is made available for private use through OpRA, the amount foregone is compared with the modified case equivalent of the car or van benefit charge – the greater value is reportable for tax purposes. The Income Tax (Earnings and Pensions) Act 2003 (ITEPA) rules are clear that connected costs are regarded as part of the car or van benefit charge.

The need for this amendment came about due to an oversight of section 7 and schedule 2 of the Finance Act 2017, which meant that no provision was made for connected costs. As a result, the value of connected costs were not included in the amount foregone, whereas they were deemed to be included within the modified cash equivalent rules, and so the comparison was not like for like.

Likewise, for capital contributions where the car is only available for part of the year, no provisions were included in section 7 and schedule 2 for the Finance Act 2017. As such, currently, the amount deductible for capital contributions where the car is only available for part of the year is overstated.

The proposed legislation, which is currently out for consultation, will ensure that the OpRA rules work as intended and address these two anomalies.

The new measures will have effect from 6 April 2019.