Employer season ticket loans.

[Merlot]

My partner travels to work on the train. Her company has a scheme in which employees can apply for an interest-free season ticket loan, with the advance and subsequent collections taken via payroll.

How is the tax calculated on this? Obviously the loan would not be tax deductible, but would the payments be taken pre tax calculations which would make it a very efficient way to buy the season ticket?

If this is the case, I calculate that her monthly ticket would come down from a real cost of £130 a month to an effective £78 per month, which is a worthwhile saving. If the payments are taken post tax, the saving would be approx. £17 a month, which is the saving we could make anyway should she buy an annual ticket rather than monthly.

I believe many larger employers offer this scheme and hope that someone could let me know how it is usually run.

[Merlot]

bogwoppit said:

I am not in the business of tax but from what I have heard elsewhere and assuming the loan is done via an Employee Benefit Trust:

The company pays into the trust and the employee is lent the money via the trust. No tax is payable on the loan itself. The repayments are deducted from your pre-tax salary, thus reducing your tax/NI liability. However, loans of >5k/year are taxed on the "interest" you would normally be paying, i.e. 40% of a "standard rate". So it can work out very tax advantageous. However, the value of the product you actually buy with the loan may be taxed as a benefit in kind, depending on what it is. Whether this applies to season tickets, I am not sure. Sorry I can't help further.

It's great for the employer though - no NI, tax relief on their contributions to the trust, and it's "green".

Useful, thanks. The value of the benefit (the ticket) is approx £1350.

If it turns out that the repayments reduce the tax/NI liability, then it is certainly something to consider.

[Merlot]

LC23 said:

A season ticket loan would not usually be done via an EBT. It would usually be an interest free loan over 12 months with repayments taken out of NET pay. The loan itself is not taxable provided it is less than £5,000. The "benefit" to the employee is usually the fact that they can then buy a season ticket, which is cheaper, and do not have to stump up the £x thousand themselves up front.

Thanks

Thinking about it, a yearly season ticket would save only about £200 a year over 12x monthly tickets.

However, if you include the 5 weeks holiday, you only need to buy 10x montly tickets and 3x weekly tickets.

If this is factored into the equation, the saving becomes just £40 in our case - not really worth the hassle of setting up a loan with HR or spending a years amount up front - especially since if you change your place of employment the refund is subject to an administration amount and is not refunded on a pro-rata basis.

[Merlot]

edc said:

Merlot said:

LC23 said:

A season ticket loan would not usually be done via an EBT. It would usually be an interest free loan over 12 months with repayments taken out of NET pay. The loan itself is not taxable provided it is less than £5,000. The "benefit" to the employee is usually the fact that they can then buy a season ticket, which is cheaper, and do not have to stump up the £x thousand themselves up front.

Thanks

Thinking about it, a yearly season ticket would save only about £200 a year over 12x monthly tickets.

However, if you include the 5 weeks holiday, you only need to buy 10x montly tickets and 3x weekly tickets.

If this is factored into the equation, the saving becomes just £40 in our case - not really worth the hassle of setting up a loan with HR or spending a years amount up front - especially since if you change your place of employment the refund is subject to an administration amount and is not refunded on a pro-rata basis.

How often do you take one whole month off to negate the need for any travel that month?

You might find that if you only take a week at a time and never more than 1 week per month then you might purchase a whole lot more weekly tickets which may be more expensive than the monthly ones.

Weekly tickets work out not much more than a monthly one pro-rata...

Prices obtained from the Southern website.