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Tax tip #3 – Beware the alternative valuation rules for OpRAs

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3 minute read.

The benefits of using a salary sacrifice or other optional remuneration arrangement (OpRA) were seriously curtailed from 6 April 2017 following the introduction of alternative valuation rules that apply where a benefit or expense is provided via an OpRA. The definition of an OpRA includes not only salary sacrifice schemes, but also flexible benefit arrangements and arrangements, such as cash or cash, where the employee is offered the choice between a non-cash benefit and a cash alternative.

The alternative valuation rules do not apply to certain benefits, and these can continue to be provided to employees under OpRAs without a loss of the associated exemption. Tip 2 explains how a salary sacrifice arrangements can continue to be beneficial for benefits that fall outside the alternative valuation rules. 

The alternative valuation rules apply to all benefits other than: 

  • employer-provided pension savings; 
  • employer-provided pension advice; 
  • childcare vouchers; 
  • employer-supported childcare; 
  • workplace nurseries; 
  • employer-provided cycles and cyclists’ safety equipment (including ‘cycle to work’ schemes; and 
  • low-emission cars with CO2 emissions of 75g/km or less. 

Where they apply, the value of the benefit for tax purposes (i.e. the amount on which tax and National Insurance is payable) is the higher of: 

  • the amount of salary given up in return for the benefit or the cash alternative offered; and 
  • the cash equivalent value calculated under the normal rules. 

Where a benefit would otherwise be exempt, the cash equivalent value would be nil; thus where provision is made via and OpRA, under the alternative valuation rules the employee is taxed on the salary foregone or cash alternative offered instead, with the effect that the exemption is lost. 

Transitional rules apply to arrangements in place on 5 April 2017.


Tim’s employer has for many years operated a salary sacrifice arrangement under which he gave up £1,000 of salary in return for which his employer provided a parking space in a car park near the office. Provided the conditions are met, the provision of parking at or near a place of work is exempt from tax. However, from 6 April 2017 the alternative valuation rules apply where provision is made under an OpRA, such as a salary sacrifice arrangement. Consequently, Tim is now taxed on the higher of: the salary foregone (£1,000); and the cash equivalent under normal rules (nil). Despite swapping £1,000 of his salary for an employer-provided parking space, Tim is taxed as if he had continued to receive the salary.

The alternative valuation rules render the arrangement ineffective from a tax perspective. However, while the tax savings are lost, the employee National Insurance savings remain as the liability is to Class 1A rather than to Class 1. This is worth either £120 or £20 a year depending on whether Tim’s earning exceed the upper earnings limit (£50,000 for 2019/20). The employer National Savings are however lost as the employer will pay Class 1A National Insurance at 13.8% rather than Class 1.   

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