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Although the alternative valuation rules for benefits provided under optional remuneration arrangements (OpRAs) apply generally from 6 April 2017 (see Tip 3), transitional rules applied to arrangements in existence on 5 April 2017, the effect of which is to delay the date from which the alternative valuation rules apply.
Where the arrangement was in place on 5 April 2017 and relates to cars (other than low emission cars), living accommodation or school fees, the alternative transitional rules do not apply until 6 April 2021, unless the contract ends, is modified or renewed prior to that date. For all other arrangements in place at 5 April 2017, the alternative valuation rules apply from 6 April 2018 (or the date that the contract was renewed/varied if earlier).
The transitional rules provide an opportunity to continue to benefit from the tax exemption as the benefit is taxed by reference to the normal cash equivalent value (of zero where an exemption is in point) rather than under the alternative rules by reference to the salary foregone or cash alternative, which would result in a higher tax charge.
Hazel’s employer operated a cash or car scheme under which employees have the choice of a company car or a cash alternative of £500 a month. Under the scheme, employees choosing a car are allocated a petrol model with a list price of £20,000 and CO2 emission of 100g/km. For 2019/20, the appropriate percentage is 24% and the cash equivalent of the benefit is £4,800 (£20,000 @ 24%).
Under the alternative valuation rules, the taxable value of the benefit (the relevant amount) would be the salary foregone of £6,000 (12 x £500) as this is higher than the amount under the normal car benefit rules. By retaining the arrangement in its existing form until 5 April 2021 (or the end of the contract is earlier), the tax on the benefit will be continue to be calculated by reference to the cash equivalent value as calculated under the company car tax rules. This is lower than the amount that would be taxed under the alternative valuation rules.