Q&As

What is the difference between an optional remuneration arrangement and a salary sacrifice arrangement?

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Published on LexisPSL on 13/04/2018

The following Share Incentives Q&A provides comprehensive and up to date legal information covering:

  • What is the difference between an optional remuneration arrangement and a salary sacrifice arrangement?
  • What is a salary sacrifice arrangement?
  • What is an optional remuneration arrangement?
  • What are the differences between the two?

From 6 April 2017, the Finance Act 2017 introduced changes to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) which, subject to some transitional arrangements, provides that benefits provided under ‘optional remuneration arrangements’ (OpRAs) no longer benefit from the income tax and National Insurance contributions (NICs) advantages previously available under salary sacrifice arrangements. The term ‘salary sacrifice’ is not mentioned at all in the new legislation, which instead refers throughout to ‘optional remuneration’. This Q&A examines the differences between the two terms. This Q&A does not discuss the tax treatment associated with OpRAs.

What is a salary sacrifice arrangement?

A salary sacrifice happens when an employee gives up the right to part of the cash remuneration due under their contract of employment. Usually, the sacrifice is made in return for the employer’s agreement to provide the employee with some form of non-cash benefit. The sacrifice is achieved by varying the employee’s terms and conditions of employment relating to remuneration. To be a valid salary sacrifice:

  1. the employe

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