An employee is on a car allowance contract of £6,000 pa (which is subject to income tax and National Insurance contributions) and they wish to swap to a company car contract but would like to choose an electric car with CO2 emissions of less than 75g so the benefit-in-kind (BIK) value on the electric car would be 2%. Would they be taxed on the BIK value or the car allowance value? Would this fall under the optional remuneration arrangement rules (OpRA)? Does it make any difference if they have a salary sacrifice pension scheme? 

Arthur replies: 

If you look at HMRC’s Employment Income Manual at EIM44060, you can see that OpRA does not apply to cars with CO2 emissions of 75 grams or less per kilometre. Cars with CO2 emissions of 75 grams or less per kilometre continue to be taxed on the cash equivalent of the benefit, without having to make a comparison with the salary foregone (see the relevant example therein).