Child Tax Credit and Season Ticket Loan - HELP!

SkyeKnight

tonicx8471 wrote: »

OK, if my wife won £10K on the lottery (would be nice) and used that for her travel and not the loan from her employer then her salary would be £19K.

If this is really true, that she only earns £19k and pays over £7k for a season ticket out of that (which I find very hard to believe), then her P60 should say £19k + bonuses + overtime.

This does not sound like a fault of the Tax Credits people, but a fault made at her work. Get them to remove the loan from the P60 apart from the taxable benefit (which I think would be the interest she has saved) and then go back to the Tax Credits people. Overtime and bonuses do count as salary and should be on the P60.

I assume you do realise you would be waaaaay better off if she worked for minimum wage with no commuting costs - she would earn about the same (£19k - £7k commuting costs) but there would be way less tax and NI and thousands more in tax credits).

skintandscared_2

I could be wrong, but I believe there is a rule that an employer can loan an employee up to £5,000 interest-free and it be disregarded, but if it's over £5,000 it's a taxable benefit. It still doesn't make it part of her salary though, as she never actually receives it.

krisskross

SkyeKnight wrote: »

If this is really true, that she only earns £19k and pays over £7k for a season ticket out of that (which I find very hard to believe), then her P60 should say £19k + bonuses + overtime.

This does not sound like a fault of the Tax Credits people, but a fault made at her work. Get them to remove the loan from the P60 apart from the taxable benefit (which I think would be the interest she has saved) and then go back to the Tax Credits people. Overtime and bonuses do count as salary and should be on the P60.

I assume you do realise you would be waaaaay better off if she worked for minimum wage with no commuting costs - she would earn about the same (£19k - £7k commuting costs) but there would be way less tax and NI and thousands more in tax credits).

But her salary is actually £19 PLUS commuting costs. She still has the £19K left after she has repaid the amount for her travel costs each month.

Forget seeing part of her salary as a loan. The whole of the £28k is her salary but they just advance her enough in a lump sum to purchase a yearly season ticket. She does have the obvious choice of declining to have the lump sum, having the £500 or so each month and buying herself a monthly ticket. We all have to pay the cost of getting to work out of our earnings.

krisskross

skintandscared wrote: »

I could be wrong, but I believe there is a rule that an employer can loan an employee up to £5,000 interest-free and it be disregarded, but if it's over £5,000 it's a taxable benefit. It still doesn't make it part of her salary though, as she never actually receives it.

Of course she receives it...she then spends it. As it happens she buys transport with it.

The key is whether she pays tax on it. If her P60 shows she has a £28K salary with the appropriate tax deducted then that is what tax credits should be using. Doesn't matter how the money is allocated to a person.

skintandscared_2

krisskross wrote: »

Of course she receives it...she then spends it. As it happens she buys transport with it.

The key is whether she pays tax on it. If her P60 shows she has a £28K salary with the appropriate tax deducted then that is what tax credits should be using. Doesn't matter how the money is allocated to a person.

Sorry, I didn't explain that very well. I meant if the husband is correct and her salary is £19k, then the travel money isn't money she receives in her hand. In the same way as my salary is, say, £40k and on top of that my firm advance me £3.5k to buy my season ticket. That doesn't make my salary £43.5k. I repay the £3.5k over 12 months, but that £3.5k is never part of my salary and never money in my hand. If I move house and my travel drops to, say, £1k a year, my salary is still £40k.

Anyway, the travel "loan" can't be classed as salary, because she pays it back. If it was part of her salary, which they just gave her in a lump sum at the start of the travel year to buy her ticket, she wouldn't have to pay one twelfth of it back every month!

xylophone

I could be wrong, but I believe there is a rule that an employer can loan an employee up to £5,000 interest-free and it be disregarded, but if it's over £5,000 it's a taxable benefit. It still doesn't make it part of her salary though, as she never actually receives it.

http://www.payandbenefitsmagazine.co.uk/pab/article/helpdesk-p11ds-12320412


"Beneficial loans

Q We have received an employee application for an annual season ticket loan of £5,075. This is the first time that we have received an application that exceeds £5,000. Will this create a taxable benefit?

A Under the Income Tax Earnings and Pensions Act 2003 (ITEPA), s 180, where the amount an employee owes an employer by way of a loan does not exceed £5,000 at any one time during the tax year there is no taxable benefit.

If you loan your employee £5,075, there will be a taxable benefit to calculate on the whole value of the loan, not just on the amount that exceeds £5,000. Therefore, you may want to consider splitting the £5,075 into two loans, payable in two different tax years, so that at no one time during any tax year do they owe you more than £5,000.
Issue:
August 2011"

I am wondering whether the employer has added the amount of the loan to the salary so that it can be taxed at source?

I know a pensioner (aged under 65) who receives Private Health Insurance from his old firm and when he receives his P60, his income is shown as the pension plus the value of the benefit. The company agreed this procedure with HMRC. This means that his tax code is the standard one for a single person, not a reduced one to take account of the benefit.

If this is the case, then the OP's wife needs to ask her employer to split the loan between two tax years as above so that it need not be shown on her P60?

krisskross

[QUOTE=skintandscared;54284445]Sorry, I didn't explain that very well. I meant if the husband is correct and her salary is £19k, then the travel money isn't money she receives in her hand. In the same way as my salary is, say, £40k and on top of that my firm advance me £3.5k to buy my season ticket. That doesn't make my salary £43.5k. I repay the £3.5k over 12 months, but that £3.5k is never part of my salary and never money in my hand. If I move house and my travel drops to, say, £1k a year, my salary is still £40k.

Anyway, the travel "loan" can't be classed as salary, because she pays it back. If it was part of her salary, which they just gave her in a lump sum at the start of the travel year to buy her ticket, she wouldn't have to pay one twelfth of it back every month![/QUOTE]

But you still have the season ticket! You can't not pay back the upfront advance AND have the season ticket can you?

skintandscared_2

krisskross wrote: »

But you still have the season ticket! You can't not pay back the upfront advance AND have the season ticket can you?

Sorry, I don't understand what you mean. Yes you have the season ticket. Which you pay for each month. So at the end of month 12, the season ticket will expire and the wife will have paid for it in full.

And the season ticket loan isn't an "advance". In every London firm I've worked for, it's a loan ON TOP of your salary. It's totally separate. It's an interest-free loan as a perk, to help commuters get to work as cheaply as possible.

In answer to the solution about spreading the payment over 2 tax years - how could that work? An annual season ticket lasts a year, which means you need that season ticket loan every year. Even if you split the loan in two, you would still end up with two halves of a loan in the same tax year!

If this loan affects the OP's wife's salary that much, she should decline it and just buy monthly travel tickets out of her salary instead. If you take off 6 weeks holiday, it doesn't work out much different over the year anyway. It's just more convenient to get an annual ticket.

krisskross

skintandscared wrote: »

Sorry, I don't understand what you mean. Yes you have the season ticket. Which you pay for each month. So at the end of month 12, the season ticket will expire and the wife will have paid for it in full.

And the season ticket loan isn't an "advance". In every London firm I've worked for, it's a loan ON TOP of your salary. It's totally separate. It's an interest-free loan as a perk, to help commuters get to work as cheaply as possible.

In answer to the solution about spreading the payment over 2 tax years - how could that work? An annual season ticket lasts a year, which means you need that season ticket loan every year. Even if you split the loan in two, you would still end up with two halves of a loan in the same tax year!

If this loan affects the OP's wife's salary that much, she should decline it and just buy monthly travel tickets out of her salary instead. If you take off 6 weeks holiday, it doesn't work out much different over the year anyway. It's just more convenient to get an annual ticket.

I am getting so confused with this and am beginning to doubt myself.

Right someone gets a loan (advance on salary) in order to buy a season ticket for a year at the cheapest possible rate.

This person then uses this money and buys the season ticket. They then have to repay the money to the employer over 12 months.

However during this 12 months they have no transport costs as they have the season ticket. Everyone has to pay their own costs to get to work so of course this upfront salary advance to buy a season ticket is part of that person's salary.

Repaying the money is just the same as paying transport costs by the month, unless of course you think the employer is responsible for the employee's costs of getting to work.

skintandscared_2

krisskross wrote: »

I am getting so confused with this and am beginning to doubt myself.

Right someone gets a loan (advance on salary) in order to buy a season ticket for a year at the cheapest possible rate.

No, the loan is NOT an advance on salary - it's additional to salary.

This person then uses this money and buys the season ticket. They then have to repay the money to the employer over 12 months. Yes

However during this 12 months they have no transport costs as they have the season ticket. Everyone has to pay their own costs to get to work so of course this upfront salary advance to buy a season ticket is part of that person's salary.

Yes they do have monthly transport costs - the loan payment! If the loan was actually an upfront salary advance, they wouldn't have to pay it back.

Repaying the money is just the same as paying transport costs by the month, unless of course you think the employer is responsible for the employee's costs of getting to work.

Exactly! Repaying the money means you DO have monthly transport costs and you pay for your own travel to work.

I think this is where the confusion comes from. The season ticket loan is NOT a salary advance. If it was, you wouldn't pay it back.

The usual system is, you get an offer letter with your annual salary set out. On TOP of that, you are offered an interest-free season ticket loan to buy a travel ticket, which you pay back over 12 months. It's not in any way connected to your salary. If it was an advance on your salary, you wouldn't make repayments every month, you'd just have pre-paid your travel for a year.