UK Optional Remuneration Arrangements (OpRA) Guide 2026/27

What is OpRA?

Optional Remuneration Arrangements (OpRA) is the HMRC term for any arrangement where an employee chooses to give up the right to salary or earnings in exchange for a benefit in kind. The most common form is salary sacrifice -- an employee agrees to reduce their contractual salary by a set amount, and the employer provides a benefit of equivalent or lower value.

Before April 2017, salary sacrifice arrangements were widely used to extract value from employment tax-efficiently because the P11D taxable value of many benefits was much lower than their cash cost. HMRC introduced the OpRA rules to neutralise this advantage for most benefits by taxing the employee on the higher ofthe P11D value or the salary they gave up.

The OpRA rules sit in ITEPA 2003 Part 3A (inserted by Finance Act 2017). They apply to all arrangements entered into or varied after 6 April 2017 (grandfathered pre-2017 arrangements expired from April 2021). The rules do not prevent salary sacrifice -- they simply remove the tax advantage for restricted benefits while preserving it for the six exempt categories.

Restricted Benefits -- OpRA Rules Apply

OpRA applies to most employment benefits. Common restricted benefits where OpRA removes the salary sacrifice tax advantage:

• Company cars with CO2 emissions at or above 75g/km
• Private medical insurance (PMI)
• Dental insurance
• Life assurance (death in service above 4x salary)
• Gym membership
• Mobile phones above the trivial benefit concession
• Season ticket loans (if structured as salary sacrifice)
• Additional annual leave purchase

For these benefits, the P11D taxable amount is the higher of: the normal cash equivalent P11D value, or the amount of salary sacrificed. Employers must use the higher figure for P11D reporting and Class 1A NI calculation. Employees pay income tax on the higher figure.

The Exempt Six -- No OpRA Restriction

Six benefit categories are excluded from the OpRA restriction by statute. Salary sacrifice arrangements in these categories retain their full tax and NI advantages:

1. Employer pension contributions -- including pension salary sacrifice; no P11D, no NI, fully deductible for the employer.
2. Employer-provided pension advice -- up to £500 per employee per year (under the Financial Advice Market Review concession).
3. Childcare vouchers -- for existing scheme members (closed to new entrants from October 2018; existing members can continue).
4. Employer-supported childcare / workplace nurseries -- where the employer contracts directly for nursery places.
5. Cycle to work -- bicycles and safety equipment up to £1,000 standard / £2,500 for e-bikes.
6. Ultra-low emission cars below 75g/km CO2 -- including fully electric cars; employee is taxed on the normal BIK value (4% for electric in 2026/27), not the salary sacrificed.

For all six, the employee pays income tax and NI only on normal employment income (reduced salary), with no OpRA grossing-up to the salary sacrificed. Employer Class 1 NI is also lower because the employee's gross salary is lower.

P11D Valuation under OpRA

For restricted benefits under OpRA, the employer reports on P11D the higher of:

• Normal P11D value -- the standard cash equivalent of the benefit as defined in ITEPA 2003 (for example, the list price percentage method for company cars).
• Amount foregone -- the gross salary or earnings the employee gave up in the period.

Example: Employee sacrifices £2,400 per year for private medical insurance with a P11D market value of £900. The OpRA taxable amount = £2,400 (the higher of £2,400 salary foregone and £900 normal P11D value). The employee pays income tax on £2,400, the employer pays Class 1A NI (15%) on £2,400. There is no tax saving compared to simply receiving the £2,400 salary and purchasing PMI personally.

From April 2026, payrolled benefits (where BIK are reported through payroll rather than P11D) must still apply the OpRA higher-value rule -- the payrolled taxable value is the higher of the normal BIK value or the salary sacrificed.

Employer Class 1A NI at 15%

Class 1A NI is charged on most benefits in kind at the secondary Class 1 rate -- 15% in 2026/27 (up from 13.8% before April 2025). It is payable by the employer only (not the employee) and is due by 19 July (22 July electronic) following the tax year in which the benefit is provided.

Under OpRA, Class 1A NI is calculated on the higher-of OpRA value (for restricted benefits) or the normal BIK value (for exempt benefits). The employer saves Class 1 NI at 15% only on benefits that are genuinely exempt from OpRA -- primarily pension sacrifice, cycle to work and sub-75g/km cars.

Where the OpRA rule applies, the employer effectively pays Class 1A NI at 15% on what the employee gave up -- meaning there is no net NI saving from salary sacrifice on restricted benefits. The only saving on restricted benefits is the conversion of Class 1 primary + secondary NI (8% + 15% = 23%) to Class 1A (15% employer only) on the initial salary conversion -- but this is offset by the OpRA grossing-up for the benefit value.

Pension Salary Sacrifice

Pension salary sacrifice is the most powerful exempt-six benefit because the savings are unrestricted in size (subject to the £60,000 Annual Allowance) and apply to both employer and employee. How it works:

1. Employee contractually reduces gross salary by an agreed amount (say £5,000 per year).
2. Employer pays the £5,000 direct to the pension scheme as an employer contribution.
3. Employee: no income tax or NI on the £5,000 (basic-rate saving £1,000 + NI primary 8% saving £400 = £1,400 total saving vs contributing net).
4. Employer: saves Class 1 NI at 15% on the £5,000 = £750. This saving can be passed to the employee, shared, or retained.
5. Employer: the pension contribution is fully deductible against Corporation Tax or income tax.

There is no OpRA restriction. The Annual Allowance of £60,000 (tapering to £10,000 for adjusted income above £260,000) applies to total pension input, but the OpRA rules do not restrict salary sacrifice within the allowance. Many employers pass the 15% NI saving to employees by increasing the pension contribution by 15% -- a significant enhancement to the scheme value.

Cycle to Work Scheme

Cycle to work schemes are exempt from OpRA and allow employees to obtain a bicycle and safety equipment tax-efficiently via salary sacrifice. The limits for 2026/27:

• Standard bicycles: up to £1,000 including safety equipment under HMRC simplified administration.
• Electrically assisted pedal cycles (e-bikes): up to £2,500.
• No statutory cap: larger schemes are possible but require a consumer credit licence and more complex administration.

The employee sacrifices the cost over a loan period (typically 12 months), saving income tax and NI on each monthly deduction. The employer saves Class 1 NI at 15% on the total sacrifice. At the end of the loan period the employee typically pays a small fair market value payment to own the bicycle.

The bicycle must be used mainly for qualifying journeys (at least 50% commuting between home and workplace or between workplaces). Cycle to work schemes are simple to administer via specialist providers (Cyclescheme, Evans Cycles, Halfords) who handle the scheme compliance on the employer's behalf.

Electric Car Salary Sacrifice

Company cars with CO2 emissions below 75g/km are exempt from OpRA, making electric car salary sacrifice one of the most tax-efficient package benefits available. In 2026/27 the BIK rate for fully electric cars (0g/km) is 4% of the P11D list price.

Because OpRA does not apply, the employee is taxed only on the BIK value (extremely low for EVs at 4%) -- not on the salary sacrificed (which could be £500 to £800 per month for a premium EV). The employer saves Class 1 NI at 15% on the sacrificed salary. For a higher-rate taxpayer sacrificing £600/month for a £40,000 EV, the combined tax + NI saving versus paying the lease personally from net salary is typically £2,000 to £4,000 per year. Electric car salary sacrifice schemes are offered by most major fleet providers.

Pre-2017 Grandfathered Arrangements

Salary sacrifice arrangements entered into before 6 April 2017 were initially grandfathered (protected from OpRA rules) until the earlier of: a variation or renewal of the arrangement, or 5 April 2021. From 6 April 2021, all arrangements are subject to OpRA regardless of when they were entered into.

Employers should audit any legacy salary sacrifice arrangements -- particularly for company cars above 75g/km, private medical insurance or gym membership -- to ensure P11D reporting correctly applies the higher-of OpRA valuation. HMRC can raise PAYE/NI assessments going back 4 years (or 6 years for careless errors) where incorrect P11D values have been used.

Worked Example: Pension Sacrifice vs Restricted Benefit

Scenario A: Pension salary sacrifice (exempt from OpRA).Employee on £50,000 salary sacrifices £5,000 to pension:

• Employee income tax saving: £5,000 x 40% (higher rate above £50,270 would be partial -- assume £5,000 at 20% basic for simplicity) = £1,000
• Employee NI saving: £5,000 x 8% = £400
• Employer Class 1 NI saving: £5,000 x 15% = £750 (often passed to employee as enhanced contribution)
• Total annual saving: £2,150 vs contributing from net pay
• OpRA restriction: none

Scenario B: Private medical insurance (restricted by OpRA).Same employee sacrifices £2,400 for PMI (P11D value £900):

• OpRA taxable amount: £2,400 (higher of £2,400 sacrificed and £900 P11D)
• Employee income tax on £2,400 at 20%: £480
• Employer Class 1A NI on £2,400 at 15%: £360
• Net saving vs cash salary: zero (employee pays tax on what they gave up)
• OpRA restriction: fully applies -- no advantage from salary sacrifice

The contrast is stark. Pension sacrifice delivers real, unrestricted savings; restricted benefit sacrifice delivers no advantage and adds administration overhead. Employers should direct employees towards the exempt-six benefits for any new salary sacrifice arrangements.