Optional Remuneration Arrangements (OpRA): UK Tax Guide 2026/27

What is an Optional Remuneration Arrangement?

An Optional Remuneration Arrangement (OpRA) is any arrangement between an employer and employee where the employee gives up a right to cash pay -- either salary or a cash allowance -- in exchange for a benefit in kind (BIK).

HMRC introduced the OpRA rules in April 2017 to stop employees receiving certain benefits tax-free (or at low tax rates) simply by structuring them as salary sacrifice. The core effect is straightforward: for most benefits caught by OpRA, the taxable amount becomes the higher of the normal cash equivalent of the benefit or the amount of salary sacrificed.

This means if you sacrifice £5,000 of salary to receive a company car with a cash equivalent of £3,000, you are taxed on £5,000 -- not the lower benefit value.

OpRA vs ordinary salary sacrifice

Before April 2017, salary sacrifice was widely used for benefits ranging from gym memberships to mobile phones. The tax saving was real and substantial: an employee on the higher rate sacrificing £1,000 of salary and receiving a £1,000 benefit paid only BIK tax (often much lower) rather than income tax at 40%.

The OpRA rules closed this gap. For most benefits, the tax saving has been eliminated.

Benefits that remain outside OpRA

HMRC carved out a specific list of exempt arrangements that are unaffected by the OpRA rules. These benefits continue to deliver genuine tax savings through salary sacrifice:

1. Pension contributions

Employer contributions made under salary sacrifice are still fully exempt from income tax and NI. This is the most valuable remaining salary sacrifice scheme. An employee on 40% income tax who sacrifices £1,000 of salary into pension saves £400 in income tax plus £80 in NI (at 8%), and the employer saves 13.8% employer NI on the sacrificed amount.

For 2026/27, the pension annual allowance is £60,000 (tapered to £10,000 for those with adjusted income above £260,000). Salary sacrifice pension contributions count towards this limit.

2. Cycle to work

Cycle-to-work schemes are explicitly exempt from OpRA. An employee can sacrifice salary to cover the cost of a qualifying bicycle and safety equipment. The scheme must meet HMRC's conditions: the bike must be primarily used for qualifying journeys (commuting to work).

There is no fixed upper limit imposed by HMRC, although many scheme providers set their own ceilings (commonly £1,000-£5,000).

3. Ultra-low emission cars (under 75g/km CO2)

Company cars with CO2 emissions below 75g/km are excluded from the OpRA restrictions. This makes electric car salary sacrifice schemes particularly effective in 2026/27, where the BIK percentage for a fully electric car is just 4%.

An employee sacrificing £500/month for an electric car worth £40,000 would have a cash equivalent of £40,000 x 4% = £1,600. If the salary sacrificed is £6,000/year, the OpRA exemption means they are taxed on £1,600 -- not £6,000. At 40% tax, this is a saving of roughly £1,760 in income tax alone.

4. Employer-provided pension advice

Up to £500 per employee per tax year of employer-funded financial advice relating to pension planning is exempt from OpRA. This is a narrow exemption but useful for businesses funding retirement planning sessions for senior staff.

Benefits restricted by OpRA

The following benefits, when provided via salary sacrifice after April 2017, are taxed on the higher of the cash equivalent or salary sacrificed:

• Company cars with CO2 above 75g/km
• Living accommodation
• School fees or education vouchers
• Gym memberships
• Mobile phones (where the employee contributes)
• Private medical insurance arranged via sacrifice
• Most cash allowances replaced by a benefit

For these restricted benefits, the tax advantage of salary sacrifice has effectively been removed.

How to calculate the P11D value under OpRA

For a restricted benefit, the P11D reportable value is the higher of:

1. The cash equivalent of the benefit (calculated under normal BIK rules), or
2. The amount of salary or allowance given up during the tax year.

Example -- company car above 75g/km:

• Car list price: £30,000
• CO2: 120g/km -- appropriate percentage: 27%
• Normal cash equivalent: £30,000 x 27% = £8,100
• Salary sacrificed: £4,800/year (£400/month)
• OpRA value: higher of £8,100 or £4,800 = £8,100

In this case, the normal cash equivalent exceeds the sacrifice, so the restriction makes no difference. But if the car were valued lower and more salary were sacrificed, the sacrifice amount would be the floor.

Example -- gym membership:

• Employer cost of gym benefit: £600/year
• Salary sacrificed: £1,200/year
• Cash equivalent normally: £600
• OpRA value: higher of £600 or £1,200 = £1,200

Here the sacrifice amount exceeds the benefit value, so the employee is taxed on £1,200 -- the full salary they gave up. There is zero tax advantage versus simply paying for the gym from after-tax income.

Employer Class 1A NI savings on exempt benefits

Employers pay Class 1A NI at 13.8% on the reportable BIK value. For exempt benefits where the salary sacrifice still reduces the benefit value, the employer saves both employer NI on the sacrificed salary and the Class 1A NI is calculated on the lower benefit amount.

For pension salary sacrifice specifically:

• Every £1,000 of salary sacrificed saves the employer £138 in employer NI (13.8%).
• Many employers pass some or all of this saving back to the employee as an enhanced pension contribution.

For an employer with 20 employees each sacrificing £3,000/year into pension, the employer NI saving is: 20 x £3,000 x 13.8% = £8,280/year.

Transitional protection

Employees in salary sacrifice arrangements that existed before 6 April 2017 received transitional protection for:

• Car arrangements: until 5 April 2021 (expired).
• All other arrangements: until 5 April 2018 (expired).

All transitional protections have now expired. Any pre-2017 restricted benefit arrangements are fully subject to OpRA rules.

Payrolling of benefits from April 2026

From April 2026, payrolling of benefits in kind becomes compulsory for most employers. P11D forms are being phased out. BIK values (including those calculated under OpRA rules) must be reported through payroll in real time rather than on annual P11D returns.

This does not change the OpRA calculation itself, but it does mean the higher-of calculation must be performed monthly (or period by period) and fed into PAYE rather than reported annually.

Key takeaways for 2026/27

• Pension, cycle to work, and sub-75g/km cars remain the only significant OpRA-exempt salary sacrifice benefits.
• For restricted benefits, there is no longer a meaningful NI saving via salary sacrifice.
• Employers should audit any existing salary sacrifice arrangements to ensure they are applying the OpRA higher-of rule correctly.
• With compulsory payrolling of BIK from April 2026, the OpRA calculation must now feed into monthly payroll runs.

Sources

• HMRC: Optional remuneration arrangements
• HMRC: Expenses and benefits: salary sacrifice
• HMRC: Payrolling: tax employees on benefits and expenses