Employer season ticket loans.

Employer season ticket loans.

Author
Discussion

Merlot

Original Poster:

4,121 posts

148 months

Saturday 13th March 2010
quotequote all
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.

bogwoppit

699 posts

121 months

Sunday 14th March 2010
quotequote all
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".

Merlot

Original Poster:

4,121 posts

148 months

Sunday 14th March 2010
quotequote all
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.

LC23

1,169 posts

165 months

Sunday 14th March 2010
quotequote all
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.

Merlot

Original Poster:

4,121 posts

148 months

Sunday 14th March 2010
quotequote all
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 smile

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.


Advertisement

Eric Mc

105,750 posts

205 months

Sunday 14th March 2010
quotequote all
Cheap or fee loans are looked on as a taxable Benefit in Kind. However, if the loans to the employee do not exceed £5,000 in any given tax year, no benefit is assessed.

The taxable benefit is the value of the interest the employee would have had to pay if the loan had been charged interest at normal rates.

The loan itself is not a benefit as, being a loan, the employee is paying it back so has not actually received any "remuneration" as such.

edc

7,341 posts

191 months

Sunday 14th March 2010
quotequote all
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 smile

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.

Merlot

Original Poster:

4,121 posts

148 months

Sunday 14th March 2010
quotequote all
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 smile

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.


bogwoppit

699 posts

121 months

Sunday 14th March 2010
quotequote all
Eric Mc said:
Cheap or fee loans are looked on as a taxable Benefit in Kind. However, if the loans to the employee do not exceed £5,000 in any given tax year, no benefit is assessed.

The taxable benefit is the value of the interest the employee would have had to pay if the loan had been charged interest at normal rates.

The loan itself is not a benefit as, being a loan, the employee is paying it back so has not actually received any "remuneration" as such.
Eric, for EBTs can the value of what you buy with the loan be treated as a BIK? I have heard conflicting information about this.

SJobson

12,241 posts

204 months

Sunday 14th March 2010
quotequote all
Merlot said:
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.
The convenience of an annual ticket is you don't need to faff around renewing. Gold cards also supposedly give you discounts similar to having a railcard on other travel, or something like that; I've never tried it.

Having moved jobs a couple of times part way through my season ticket, I've usually just paid for the remainder outright from my final month's salary. I'd be surprised if there were an admin fee for doing that?

influential

133 posts

123 months

Wednesday 31st March 2010
quotequote all
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.
Indeed - this is how we offer this to our employees, thus no BIK applicable - purely a cashflow benefit to the employee.

avery

4 posts

102 months

Friday 8th October 2010
quotequote all
I actually never heard of such a loan scheme ( http://fntn.com/loans ) but it actually sound very interesting. A good friend of mine also works in an international company and maybe they also have such a scheme. I will definitely ask him. Would be very interesting to know if many companies have such a loan scheme.

Edited by avery on Friday 8th October 11:31


Edited by avery on Friday 8th October 11:32