Company car drivers potentially face back tax demand over new OpRA rules

Company car drivers have been warned that they could be subjected to demands for back tax from HMRC following this year’s introduction of complex Optional Remuneration Arrangements (OpRA) rules.

The Fleet Industry Advisory Group’s (FIAG) autumn workshop, ‘Fleet Policy - Challenges and Influences’ heard Activa Contracts’ sales and marketing director Lisa Temperton highlight that understanding and correctly interpreting OpRA regulations was one of the “major challenges” currently facing businesses.

Essentially the new rules were introduced by Government to mean employees opting for a salary sacrifice arrangement or taking a company car in lieu of a cash alternative paid tax on the higher of the existing company car benefit value and the salary sacrificed or cash allowance given up.

However, car arrangements in place before April 6, 2017, are protected until April 2021 and ultra-low emission vehicles (ULEVs) - currently those with CO2 emissions of 75g/km or less - are exempt from the regulation.

OpRA rules were rapidly introduced on April 6, following confirmation in last year’s autumn Budget and subsequent Finance Bill, but the impact of the changes are still coming to light.

For example, it was recently revealed that the new OpRA rules should only take into account the amount of salary sacrificed for the car itself thereby excluding vehicle maintenance, insurance, new tyres and roadside breakdown and recovery for example.

That means that the finance rental for a car and all other costs should be separated out making so-called “proportionality” now an issue for employers in respect of OpRA.

Temperton told delegates at the workshop that when P46 (Car) forms were sent to HMRC by employers at the end of the 2017/18 tax year they could be incorrect.

“Some employees will have underpaid tax and that will cause pain as HMRC looks to recoup the tax they believe due,” said Temperton, who highlighted that underpayment was likely to be caused because company payroll departments were not yet set up to handle the impact of OpRA rules on tax.