Employees can also use their season ticket loan across a huge range of travel and parking providers, making the scheme even more appealing. The employer has loads of flexibility with the scheme and can set the maximum loan amount and the number of months employees have to make the repayments. Generally, an employer is free to make loans to employees for any purpose, and low cost or interest-free loans are commonly offered as an employee benefit.
Designing Effective Commuting Benefits for Employers
Solomon joined FKGB in 2021 with several years’ bookkeeping experience, as well as having worked as VAT and payroll manager for a number of companies in the U.K.He works from the U.K. Gordon trained in auditing at Price Waterhouse in London, qualifying as a Chartered Accountant in 1990. He set up the practice, Gordon Levy Limited in 2007, specialising in auditing from 2013 onwards. With a vast knowledge and experience, he is always on hand to advise and assist the firm’s clients.
Bradley joined FKGB as a Junior Accountant in January 2023 after his recent move to Israel. In 2020, Bradley completed a Bachelor of Business/Bachelor of Banking & Finance specialist degree from Monash University in Melbourne. Bradley is driven to go the extra mile to create value for clients and make a meaningful impact.
Also, you will not have to pay Employers’ National Insurance Contributions to the salary ‘sacrificed’ by your employee. The types of work and the different types of commutes that come with it have become more fragmented. This means it’s more important for businesses to make different ways of commuting more viable for staff. Tools which collect anonymous data to enable us to see how visitors use our site and how it performs.
Structuring a salary sacrifice arrangement requires adherence to tax regulations and employment contracts. The objective is to create an agreement where employees forgo a portion of their salary in exchange for non-cash benefits, generating tax efficiencies for both parties. Typically, paying monthly for your season ticket through a vendor and not through your salary can cost more in the long run as interest applies. This scheme helps employees take advantage of the cheaper annual fee but still spread the cost. Similarly, no tax charge can arise if an employee is able to demonstrate that he has derived no benefit from a loan made to a relative of his. This exemption applies to the charge in respect of a loan and also applies where a debt is released or written off.
Employees are often drawn to salary sacrifice arrangements for their potential financial savings. By redirecting part of their salary towards non-cash benefits, employees can lower their taxable income, reducing income tax and National Insurance contributions. For those nearing a higher tax bracket, this approach can help them remain in a lower tax band, further reducing liabilities. When combined with salary sacrifice, season ticket loans can further reduce an employee’s taxable income. However, this may also affect National Insurance contributions and pension entitlements.
- He is focused on delivering practical, effective financial solutions and takes pride in supporting clients with care and precision.
- Eli joined FKGB in 2020 having worked for an accounting practice in London, gaining experience across a range of clients in bookkeeping, VAT and payroll services.
- Here we discuss the benefits that can save your employees tax, and do not require you spending too much money.
- A close company is controlled by five or fewer participators or by its directors.
Tax Saving Benefits for your Employees
In the majority of cases, this type of benefit would be subject to tax and NIC in full as well as reporting consequences. However, there are some common ways that an employer may assist an employee with their commuting costs that are exempt from tax and NIC. For example, an employee earning £50,000 annually who sacrifices £5,000 for pension contributions lowers their taxable income to £45,000. This could move them from the higher 40% tax band to the basic 20% band on the sacrificed amount, resulting in significant tax savings. Additionally, National Insurance contributions, which are 12% for earnings up to £50,270 in the UK, can also be reduced, enhancing the financial benefits. Big changes to our way of living in recent times has made the scheme even more popular.
Employers should provide clear guidance to help employees weigh immediate tax savings against potential long-term reductions in statutory are work season ticket loans taxable benefits. Salary sacrifice arrangements can enhance an employee’s benefits package, offering perks like higher pension contributions or health insurance. While these benefits improve financial security, employees must understand their broader implications.
Why the scheme is so important
If your business is providing credit to consumers under regulated agreements, then you will need a consumer credit licence. Shimshon is originally from London and has qualified as a bookkeeper and payroll accountant in Israel. He has vast experience in all payroll matters and manages our payroll department. Driven by his strong work ethic and enthusiasm for all things financial, Doron has excellent customer focus and particularly enjoys working in the areas of accounting and taxation. Sara’s experience includes six years as a Bookkeeper for a UK company, as well as several years training bookkeepers and accountants on the use of accounting software. David understands the challenges of business development and enjoys creating long term business relationships with the clients.
The loan is repaid monthly through deductions from the employee’s net pay over a set period. Paying for a season ticket directly through a vendor, rather than via salary deductions, can often be more expensive due to interest charges. This scheme allows employees to benefit from a lower annual fee while spreading the cost over time. If Brenda’s employer gives her an interest-free loan of £5,510 to enable her to buy the season ticket, it only costs Brenda the £5,510 she borrows and subsequently repays to her employer.
Employer-provided loans: A ‘cheap’ benefit?
The agreement itself must contain certain key terms, including a 14-day withdrawal period. These requirements mean that you will need specialist documentation and the arrangements used for standard interest-free loans, eg season-ticket loans, will not be suitable. A loan will be exempt from the CCA in certain circumstances, the most common of which is if the rate of interest does not exceed 1% above the base rate of certain banks. As an employer covering your employees’ public transport costs, you have certain tax, National Insurance and reporting obligations. You can help attract and retain your key employees through a tax favoured scheme, such as an Enterprise Management Incentive (EMI).
Enabling recruitment businesses to maximise their performance, productivity and profitability. As a result, employees are becoming more conscious about the environmental impact of the different modes of commute. Their research shows it’s one of the most popular and well-used schemes available and for good reason.
- Provided the total of all beneficial loans made to Brenda by her employer is less than £10,000, no taxable benefit arises, so the cost of the benefit is nil.
- If Brenda’s employer gives her an interest-free loan of £5,510 to enable her to buy the season ticket, it only costs Brenda the £5,510 she borrows and subsequently repays to her employer.
- David understands the challenges of business development and enjoys creating long term business relationships with the clients.
- Employers must monitor this threshold to avoid additional tax liabilities for employees.
- Season ticket loans, offered by employers to assist employees with the upfront cost of annual travel passes, come with specific tax considerations.
Originally from Borehamwood, Hertfordshire, Sam graduated from The University of Leeds before training to become a chartered accountant at a firm in central London. Salary sacrifice may also affect eligibility for state benefits like Universal Credit in the UK, which are means-tested. Employees should assess their personal circumstances before committing to ensure they do not inadvertently disadvantage themselves.
However, HMRC are likely to take a close look at cases where such a claim is made. However, you need to tread carefully as some types of loan may be caught by the Consumer Credit Act 1974 (CCA). The CCA also catches not just straightforward cash loans, but also certain types of credit agreement such as deferred payment share plans. Employers should provide detailed information about the benefits and potential impacts, including how they affect net salary, tax liabilities, and future entitlements.
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