Interest free loan from employer

[shielsy]

hello chaps.

so today has been a good day... been offered a new job from a company that i want to work for. i currently live in milton keynes and the company is based in london so i will be commuting via train 5 days a week. the employer has stated that they can offer an interest free loan for my rail fare. am i right in saying that they can deduct this before tax like a traditional salary sacrifice, or is there more to it? i know i could find out from them at some point, but i am awaiting the formal offer to arrive and would like to do some sums in the meantime.

thanks in advance

[Eric Mc]

No they CANNOT deduct this before tax.

If you are on a salary of £30,000, you will pay tax on £30,000 - irresepctive of any loans your employer may have made you.

In actual fact, if an employer lends money to an employee at low or no interest, the employee is deemed to have received a taxable benefit in kind in respect of the interest that HAVEN'T been charged. So, in theory, receiving an interest free or low interest loan from you employer can result in you paying MORE tax, not less.

The good news is that the loan has to be greater than £10,000 for a Benefit in Kind tax charge to be triggered.

[shielsy]

ok that makes sense. the train fare is in the region of £5700 so being able to save tax on that figure is certainly something i wanted to check.

[Eric Mc]

You are lucky. Up until 5 April 2014, the threshold at which a loan became chargeable to a BIK was only £5,000. If you had received a £5,700 loan this time last year, you would have paid tax on the interest free element of the loan on a capital sum of £700.

It was precisely because of the increase in train commuter annual tickets that the threshold was doubled.

[edeath]

If it helps here's the link to the HMRC page for this:

http://www.hmrc.gov.uk/payerti/exb/a-z/p/public-tr...