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Season ticket-taxed on refund

ssray
ssray Posts: 78 Forumite
Part of the Furniture Combo Breaker
in Cutting tax
As I work for a train operating company, I get a loan from work for my annuall season ticket-i also get discount/refund on part of the price.

I end up paying more permonth in tax on the refund than the amount I actually pay for the season ticket,any way round this?

Ta

Ray

Comments

  • jakesuk
    jakesuk Posts: 226 Forumite
    Provided your season ticket loan is below £5,000, the amount of tax you pay (regardless of discount) is the same with or without the season ticket loan.

    The amount of income tax is calculated based on your gross salary, then from your net pay your employer deducts your loan repayments. The season ticket won't save you any tax but it is an interest free loan!
  • ssray
    ssray Posts: 78 Forumite
    Part of the Furniture Combo Breaker
    Thanks, the amount of the season ticket is £7600,yep its a long way to work.

    cheers

    Ray
  • jakesuk
    jakesuk Posts: 226 Forumite
    When the total amount of loan(s) goes above £5,000 the benefit is assessed on the entire amount, not just the excess above £5,000.

    That is a large loan - maybe you could live nearer to work!
  • ssray
    ssray Posts: 78 Forumite
    Part of the Furniture Combo Breaker
    Thanks, we moved so the kids could see the outlaws more often, looks like I`ll have to live with it for the mo`.

    Thanks

    Ray
  • LittleVoice
    LittleVoice Posts: 8,974 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    Trying to understand this.

    Is the loan larger than the amount you pay for the season ticket? If so, why? Shouldn't it be for the actual amount you fork out for the ticket?

    If you don't want to pay tax on the loan (and surely it's only on the notional interest not on the sum itself?), only take out a loan for part of the cost.
  • olly300
    olly300 Posts: 14,738 Forumite
    Part of the Furniture 10,000 Posts Combo Breaker
    LittleVoice wrote: »
    Trying to understand this.

    Is the loan larger than the amount you pay for the season ticket? If so, why? Shouldn't it be for the actual amount you fork out for the ticket?

    If you don't want to pay tax on the loan (and surely it's only on the notional interest not on the sum itself?), only take out a loan for part of the cost.

    The OP loan is for the entire amount of the season ticket. It seems the reduction for being staff is applied monthly to the repayments.

    This is because season tickets have no value after 10 months so if the OP leaves the job in month 11 s/he will pay the final 2 instalments for months 11 and 12, but shouldn't receive the final 2 monthly reductions for being staff as they are no longer staff.
    I'm not cynical I'm realistic :p

    (If a link I give opens pop ups I won't know I don't use windows)
  • ssray
    ssray Posts: 78 Forumite
    Part of the Furniture Combo Breaker
    The loan is for the full amount of the season ticket, £7608-this is taken from my wage in 10 eaqual payments, I then get the refund paid by another dept into my wage, This is then taxed at 40%- that was the bit i was not advised of when moving so far from work, as we remortgaged last april when the rates had gone up i was attempting to see if i could legaly cut this down a bit, it appears no.

    Cheers

    Ray
  • apcorbett
    apcorbett Posts: 161 Forumite
    The best (and cheapest) way round this is to ensure that you only get a loan for just under £5k - that was it is not taxed... This will actually save you money, as 40% of £7k is just over £3k, whereas if you paid the remainder out of savings, and then got an interest free loan for £5k, you'd be quids in
    Andy Corbett

  • jakesuk
    jakesuk Posts: 226 Forumite
    I don't quite understand your point APcorbett.. Regardless of the size of the loan it will be taxable at 40% when it is refunded because at that point it is effectively the same as any other employment income coming through the payroll.

    In addition to the 40% tax when refunded, there is a further benefit assessed on the loan only if it is above £5k, but this is separate to the tax arising from the reimbursement and it will be a lot less than 40%.

    I agree if Ray only gets a loan for £5k then he will avoid the tax arising from having a large interest free loan, but he will still suffer tax when reimbursed the £5k at 40% and he'll end up worse off as he has to fork out the extra £2k to cover the full cost of the season ticket.
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