Salary sacrifice to buy an annual season ticket

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SD80
SD80 Posts: 4 Newbie
in Public transport & cycling
Hi,


Just wondering if anyone can help me to work out if I'd be better off paying for my annual rail gold card through my work's salary sacrifice scheme or by paying it outright myself.


My dilemma is that work will only pay for the season ticket in January after the rail fare increase has kicked in. My ticket runs out in early December so if I buy it myself I can beat the fare increase. The ticket price in December is £1,876 whereas in January it'll be £1,903. My income tax rate is 20%.


Any advice you can offer would be much appreciated!

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  • Mr_Singleton
    Mr_Singleton Posts: 1,891 Forumite
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    Didn't think the TOC's allowed you to buy at the pre-increase price.... TFL (No surprise) don't!
  • Chino
    Chino Posts: 2,029 Forumite
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    edited 11 November 2019 at 4:17PM
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    Mr_Singleton wrote: »
    TFL (No surprise) don't!
    Really? Where did you read this?

    I used to buy a TfL annual travelcard in December and paid whatever the price was for that year, not the price it would be from January.


    To the OP: If you took the loan and didn't have to repay it for a year, 1% interest on £1,903 for a year would be £19.03.
    The saving you make by buying your ticket in December is £1,903 - £1,876 = £27.
    As you'll be repaying the loan during the year (and so wouldn't receive interest on the whole £1,903 for a year), you'll clearly be better off paying for the ticket yourself.
  • SD80
    SD80 Posts: 4 Newbie
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    Thanks both for your replies. I bought my annual season ticket last December and the lower price but maybe it depends on the train company.

    Chino: would tax make a difference? As the repayments will be taken from my gross pay before tax is deducted would that be enough to offset the interest on the loan?
  • Chino
    Chino Posts: 2,029 Forumite
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    edited 11 November 2019 at 10:30PM
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    SD80 wrote: »
    Chino: would tax make a difference? As the repayments will be taken from my gross pay before tax is deducted would that be enough to offset the interest on the loan?
    Yes, it would - I'd skim read your post and thought the loan was being repaid by deductions from your net pay.

    The salary sacrifice means your taxable income will be reduced by £1,903 meaning that you would see a reduction in your net salary of £1,903 x (1-0.2) = £1,522.40. However, for this reduction in your take-home pay you get a ticket worth £1,903.

    So, contrary to what I said before, even though buying your ticket in January will cost £27 more than buying it today, you're much better off waiting and taking advantage of the salary sacrifice scheme.
  • SD80
    SD80 Posts: 4 Newbie
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    That's good to know. I guess I'll hang on until January then. Thanks for your help!
  • MDMD
    MDMD Posts: 1,431 Forumite
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    Unfortunately the employer is almost certain to deduct from net pay, not gross. Even if they did take from gross pay they would be treated as providing you with the train ticket in lieu of salary and need to provide details to HMRC on a P11d.

    https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim06300
  • SD80
    SD80 Posts: 4 Newbie
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    Thanks, I'll have a read of that link
  • beanybot
    beanybot Posts: 46 Forumite
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    Can you cycle?
  • Chino
    Chino Posts: 2,029 Forumite
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    MDMD wrote: »
    Even if they did take from gross pay they would be treated as providing you with the train ticket in lieu of salary and need to provide details to HMRC on a P11d.
    If you look at form P11D for the current tax year, the rubric for section H Interest-free and low interest loans says:
    If the total amount outstanding on all loans does not exceed £10,000 at any time in the year, there’s no need to complete this section unless the loan is provided under an optional remuneration arrangement when the threshold does not apply
    Expenses and benefits 2018 to 2019 (P11D)

    OP: You should check all of this with your company's HR/Personnel department.
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