The Government's changes to salary sacrifice car schemes and cash allowances - now termed as Optional Remuneration Arrangements (OpRA) - have come into effect.

Following the Spring Budget and Autumn Statement, it was known that income tax and national insurance benefits were going to be 'largely withdrawn.' Following clarifications from the Finance Bill delivered on the 20th March 2017, we are now able to explain the changes in more detail:

Legislation Changes For Employees

For vehicles ordered from the 6th April 2017, Drivers are due to pay the higher of either:

  • The taxable value of the benefit (Benefit in Kind)
  • Income tax on the amount of salary sacrificed or cash allowance foregone

Legislation Changes For Employers

For vehicles ordered from the 6th April 2017, Employers are due to pay Class 1A National Insurance on the higher of either:

  • The taxable value of the benefit (Benefit in Kind)
  • Amount of salary sacrificed or cash allowance foregone

Cash Allowances

The legislation also impacts employees that were offered a cash option or a company car allowance. If the employee chooses the car they will pay income tax on the higher of either:

  • The taxable value of the benefit (Benefit in Kind)
  • The cash allowance they chose not to take.

If the employee chooses cash they will continue to pay income tax and national insurance on the cash allowance and the employer will pay Class 1 National Insurance on the cash value

Exemption: Cars ordered on or before the April 5th 2017


Cars ordered on or before the 5th April 2017 are exempt from the new legislation.

This means that the taxable value is based on the Benefit-in-Kind only and the salary sacrifice or cash allowance value is ignored.

This is under the provision that the arrangement does not change before the 6th April 2021 – for example, if the vehicle is changed during this period or a contract is renewed, the vehicle will be subject to the new legislation.

Exemption: Ultra Low Emission Vehicles (75g/KM C02 or below)

ULEVs are exempt from the new legislation. This means that the taxable value is based on the Benefit-in-Kind only and the salary sacrifice or cash allowance value is ignored.

Want to know more about setting up a Salary Sacrifice Scheme in your business? Call 01332 267 389 or email info@pendragon.uk.com.

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Whilst every care has been taken to ensure the accuracy of this document, Pendragon Vehicle Management Limited and any of its group companies (together Pendragon), do not give any representation or warranty as to the legal, regulatory, tax or accounting implications of the matters referred to in this document, nor for the accuracy of the information provided herein. Pendragon is not providing you with tax or other professional advice in this document. You and your employees (as applicable) should take independent advice where necessary. Pendragon is not responsible or liable to you, your employees or any third party for any liability, loss, claim, cost or expense incurred by you, your employees or any third party as a result of relying on any information contained in this document.

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