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If you allow your staff to pick a tax-free benefit, such as a parking space near work, a bicycle, or employer pension contributions, you would think that everyone would be happy.

But where the employees have given up some of their salary to receive the benefit, some may be taxed on the benefit provided and others won’t. This is because of the tricky rules called optional remuneration arrangements (OpRA). These broadly impose tax on the employee according to the amount of salary sacrificed rather than the taxable (or non-taxable) value of the benefit.

However, there are certain exemptions from the OpRA rules, for example, employer pension contributions and bicycles provided under a cycle-to-work scheme. If the employee sacrifices salary for those tax-free benefits, they will pay less tax and NIC.

A parking space close to work is also a tax-free benefit, but it is not exempt from the OpRA rules. Where salary is sacrificed in favour of a parking space, the employee is taxed on the amount of salary given up.

The solution is not to offer a choice of salary or parking space, but instead offer the employee a basic salary plus parking space, take it or leave it. The employment contract will have to be carefully drafted to make it clear that an option was not available.

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Clarke Nicklin House, Brooks Drive, Cheadle Royal Business Park, Cheadle, Cheshire, SK8 3TD. Registered Number OC309225.
The firm is registered to carry on audit work in the UK & Ireland. Details about our audit registration can be viewed at www.auditregister.org.uk under reference number C001178544. The professional rules applicable are the Audit Regulations and Guidance which can be found at www.icaew.com/regulations, and the International Standards on Auditing (UK and Ireland) which can be found at www.frc.org.uk/apb/publications/isa.cfm.