EIM44040 - Optional remuneration arrangements: vouchers and credit tokens
Chapter 4 of Part 3 ITEPA 2003
From 6 April 2017, the Income Tax and NICs advantages where benefits are provided through arrangements under which the employee gives up the right to an amount of earnings in return for a benefit are largely withdrawn. Guidance on optional remuneration arrangements from 6 April 2017 starts at EIM44000.
Transitional provisions apply for a limited period. For further details see EIM44030.
Certain benefits in kind are excluded from the changes. For further details see EIM44130.
Cash vouchers
Where an optional remuneration arrangement is used to provide cash vouchers to an employee, the relevant amount to treat as earnings from the employment is the greater of:
- the cash equivalent (the sum of money for which the voucher is capable of being exchanged), and
- the amount the employee has foregone in relation to the benefit of the voucher
Non-cash vouchers
Where an optional remuneration arrangement is used to provide non-cash vouchers to an employee, the relevant amount to treat as earnings from the employment is the greater of:
- the cost of providing the voucher, and
- the amount the employee has foregone in relation to the benefit of the voucher
Transitional provisions apply for a limited period. For further details see EIM44030.
Certain benefits in kind are excluded from the changes. For further details see EIM44130.
Credit tokens
Where an optional remuneration arrangement is used to provide the use of a credit token to an employee, the relevant amount to treat as earnings from the employment is the greater of:
- the cost of providing the credit token, and
- a just and reasonable proportion of the amount foregone in relation to the benefit of the credit token to reflect the use of the credit token in the tax year to obtain money, goods and services
The cost of provision is the sum of the individual costs of provision with respect to each occasion when the credit token is used by the employee in the tax year to obtain money, goods or services.
Example
An employer provides employees with the opportunity to enter into an optional remuneration arrangement in which they give up £50 of salary each month in return for £50 in non-cash vouchers. The employer has entered into a deal with the voucher supplier to purchase vouchers at a discounted cost of £45. Under the optional remuneration arrangement rules, the value of the benefit for the tax year is £600. This is the greater of the cost of providing the vouchers - £540 (£45 × 12) - and the amount of salary sacrificed by the employee - £600 (£50 × 12).
Whether the benefit is provided through a cash voucher, non-cash voucher or credit token, when determining the taxable value of the benefit and whether to use the cost of providing the benefit or the amount foregone, any amount made good by the employee is not taken into account. However, once the taxable value has been established, if any amount has been made good before 6 July following the end of the tax year in which the benefit is provided, this should be deducted from the relevant amount.