Should salary sacrifice be introduced for season tickets?

[mrmartin]

Was thinking maybe a good way to boost season tickets again and encourage people to work from the office more (not sure if that actually is a positive, but the govt seems to think it is) would be to introduce the ability for employers to buy season tickets out of gross pay and not net as it is currently.

This would reduce the cost of season tickets by about 60% for higher rate taxpayers and 50% for additional (employee and employers NI and income tax).

I think actually this would be pretty cost neutral as people are tending to buy tickets 2 or 3 days a week out of their net pay currently, so charging them for 5 days a week out of their gross should result in similar revenues for govt. It shouldn't introduce overwhelming demand requiring massive amounts of new services given how quiet Mondays and Fridays can be on commuter routes (though it may increase leisure trips on the weekend, which may require new services).

Seems to me like a win win - employers get to offer a perk and gets people in the office more, doesn't cost govt much and potentially creates more economic activity in city centres (leading to more tax revenue potentially and less loss of business rates), and employees get more travel.

 

[Hadders]

I doubt this is realistic.

- The tax loss would be too great for the Treasury
- It would be seen to chiefly benefit ‘rich people in London and the South East’ as far as the media are concerned
- It would have to be administered through employers payroll creating an administrative burden
- Anyone using the ticket to travel for leisure (eg weekends and days off) would be benefitting from the salary sacrifice scheme, which many would say isn’t right.

 

[Welly]

Salary sacrifice can actually reduce your pensionable pay and hence contributions so be careful.

 

[miklcct]

Yes I think so, similar to some other countries where commuting season tickets are paid by employers and are tax deductible.

 

[Ediswan]

- Anyone using the ticket to travel for leisure (eg weekends and days off) would be benefitting from the salary sacrifice scheme, which many would say isn’t right.

There is a precedent for that. A common use for salary sacrifice is the Cycle to Work scheme. It is asked (not required) that 50% of the use is work-related travel. Significant leisure use is explicitly approved of.

 

[deltic]

Given that salary sacrifice can be used to buy a car it would seem only fair to allow it to be used for season tickets although I would prefer if salary sacrifice was scrapped altogether

 

[Hadders]

Salary sacrifice can actually reduce your pensionable pay and hence contributions so be careful.

Indeed. And you also have to be careful to make sure that salary sacrifice doesn’t take your pay below the National Living Wage.

There is a precedent for that. A common use for salary sacrifice is the Cycle to Work scheme. It is asked (not required) that 50% of the use is work-related travel. Significant leisure use is explicitly approved of.

Encouraging cycling is seen as a health benefit. The same cannot really be said for rail (although some might argue otherwise).

I would prefer if salary sacrifice was scrapped altogether

I wouldn’t!

 

[dastocks]

It wouldn't work because commuting costs funded by an employer are treated as a fully taxable benefit. There are a few exceptions, one of them being cycle to work schemes.
My first graduate employer payed for season tickets as a benefit. I had to pay tax/NI on the value of the ticket via an adjustment applied on the company payroll: they added a twelfth of the value of the ticket to the gross monthly salary on payslips in order to make the correct deductions. The fact that the annual salary on my P60 was boosted by the value of the season ticket was very handy when I was looking for my first mortgage.

 

[deltic]

It wouldn't work because commuting costs funded by an employer are treated as a fully taxable benefit. There are a few exceptions, one of them being cycle to work schemes.
My first graduate employer payed for season tickets as a benefit. I had to pay tax/NI on the value of the ticket via an adjustment applied on the company payroll: they added a twelfth of the value of the ticket to the gross monthly salary on payslips in order to make the correct deductions. The fact that the annual salary on my P60 was boosted by the value of the season ticket was very handy when I was looking for my first mortgage.

Salary sacrifice is not funded by your employer - its a tax break - you pay for your season ticket out of pre-tax earnings.

 

[Richardr]

Salary sacrifice to my mind is wrong for a few reasons:

• the tax system should be simpler - forever tinkering with it is wrong
• it subsidizes higher tax payers more than lower tax payers
• it removes the real cost of something from government accounts, offsetting against reduced revenue

If season tickets should be subsidized (further?) then there is a simpler solution - reduce the price directly.

 

[miklcct]

If season tickets should be subsidized (further?) then there is a simpler solution - reduce the price directly.

Reducing the price doesn't distinguish between commuting or other kinds of frequent travel. Given that commuting is a mean to reduce pressure on house prices, it should be subsidised. I don't see the need to subsidise extends to regular leisure travel, or regular travel to the supermarket.

 

[dastocks]

Salary sacrifice is not funded by your employer - its a tax break - you pay for your season ticket out of pre-tax earnings.

So take us all through it. Let's say the employee's gross salary is £50K and a £2K season ticket is to be funded via salary sacrifice. What do you think happens, and where is the tax etc. 'saved'?

You *might* be able to make a salary sacrifice scheme work by treating flexi-season tickets as expensed travel for an employee. This would be on the basis that the employee wasn't spending more than 40% of their working time at a single place of work. The employee would probably have to purchase the tickets, claim the expense from their employer and it would then be deducted (i.e. 'sacrificed) from their gross salary and the tax/NI adjusted accordingly. That's the only thing I can see that might work.

 

[Richardr]

So take us all through it. Let's say the employee's gross salary is £50K and a £2K season ticket is to be funded via salary sacrifice. What do you think happens, and where is the tax etc. 'saved'?

In general, salary sacrifice means, in your example, the employee would be taxed on income of £48,000 - hence saving the difference in tax on that and £50,000 - i.e. their marginal tax rate on £2,000 [there are also NI savings as well].

 

[deltic]

So take us all through it. Let's say the employee's gross salary is £50K and a £2K season ticket is to be funded via salary sacrifice. What do you think happens, and where is the tax etc. 'saved'?

This is an oversimplification but it works like this. Your salary is £50k, you get £10k tax free allowance and you pay 20 per cent tax on 40k so pay 8k tax. With salary sacrifice you give up £2k for a season ticket so your taxable salary is reduced to £48k. You still get £10k tax free allowance so you pay 20 per cent tax on £38k ie you pay £7.6k tax saving you £400 in tax. In reality in this case you will be in 40 per cent tax bracket so you will save £800 in tax.

 

[Sm5]

An employer could give you a work from home contract, and then pay for a travelcard for expense related travel to a work location.

As long as its not used consistently & daily to the same location. I dont see a tax issue, I suspect many IR35 contractors have been doing that for years anyway.

 

[Bletchleyite]

Yes I think so, similar to some other countries where commuting season tickets are paid by employers and are tax deductible.

Commuting is tax deductible by any mode in some countries. I am not sure this is the right way to go as commuting is to be discouraged. Hybrid working is much better as it reduces travel.

 

[miklcct]

Commuting is tax deductible by any mode in some countries. I am not sure this is the right way to go as commuting is to be discouraged. Hybrid working is much better as it reduces travel.

Commuting is to be encouraged because it relieves housing demand in the central urban area. Without affordable transport there is no way to accommodate the growing workforce in Zones 1-2!

 

[mrmartin]

I doubt this is realistic.

- The tax loss would be too great for the Treasury
- It would be seen to chiefly benefit ‘rich people in London and the South East’ as far as the media are concerned
- It would have to be administered through employers payroll creating an administrative burden
- Anyone using the ticket to travel for leisure (eg weekends and days off) would be benefitting from the salary sacrifice scheme, which many would say isn’t right.

1) There wouldn't be a huge tax loss probably. Instead of many people paying for 2 or 3 days of train travel out of net pay, they'd be paying (much more) for a season ticket out of gross pay. My whole point was that it would be approximately revenue neutral.
2) Ok, not a bad thing though given how poorly the tories are polling in SE & London (with both LDs and Lab on their case)
3) Exactly the same as cars and cycles
4) see above


It seems fairly mad you can use salary sacrifice for a car (electric) or bike, but you can't for a bus or train season.

An employer could give you a work from home contract, and then pay for a travelcard for expense related travel to a work location.

As long as its not used consistently & daily to the same location. I dont see a tax issue, I suspect many IR35 contractors have been doing that for years anyway.

Yeah but that would mean the employee can work from home all the time if they want! Which is completely contradicting the incentive for employers to give them out.

 

[Nick Ashwell]

An employer could give you a work from home contract, and then pay for a travelcard for expense related travel to a work location.

As long as its not used consistently & daily to the same location. I dont see a tax issue, I suspect many IR35 contractors have been doing that for years anyway.

If clever with an IR35 your primary location is home and therefore any travel can be claimed

 

[Richardr]

Reducing the price doesn't distinguish between commuting or other kinds of frequent travel. Given that commuting is a mean to reduce pressure on house prices, it should be subsidised. I don't see the need to subsidise extends to regular leisure travel, or regular travel to the supermarket.

How does salary sacrifice distinguish then? Virtually everyone likely to buy a season ticket will be commuting to work - how many people buy a season ticket just to go shopping? How many people buying a season ticket will not be in work?

 

[edwin_m]

When I last enquired about 15 years ago, car parking could be paid by salary sacrifice but public transport couldn't. Is this still the case? If so it is grossly unfair.

 

[dastocks]

This is an oversimplification but it works like this. Your salary is £50k, you get £10k tax free allowance and you pay 20 per cent tax on 40k so pay 8k tax. With salary sacrifice you give up £2k for a season ticket so your taxable salary is reduced to £48k. You still get £10k tax free allowance so you pay 20 per cent tax on £38k ie you pay £7.6k tax saving you £400 in tax. In reality in this case you will be in 40 per cent tax bracket so you will save £800 in tax.

The flaw in your argument is that the £2k you sacrificed *cannot* be spent on a season ticket for regular travel between your home and a 'normal place of work' without it being taxed. You need to go and look at the HMRC rules regarding reimbursement of travel expenses and what is allowable.

Expenses and benefits: travel and subsistence

Tax and reporting rules for employers who provide transport subsistence expenses for employees.

www.gov.uk

"... All non-business travel is counted as private. This includes the journey between an employee’s home and permanent workplace. ..."

The £2k that was sacrificed will be treated as having been spent on private travel, and that is a taxable benefit. There can be no tax saving, which is why you won't find an employer that offers such a scheme. Consultants and contractors doing project work at client sites can have their commuting treated as an allowable business expense subject to certain limits - go and look for the "24 month rule".
I have been through all this, including projects at client sites that went over the 24 month limit, at which point my employer covered the tax liabilities on my behalf so that I was not losing anything peronally. The tax they were paying also had to be treated as taxed income and the 'grossing up' calculation meant my expenses claims were subject to a marginal tax rate of something like 90%.

 

[deltic]

The flaw in your argument is that the £2k you sacrificed *cannot* be spent on a season ticket for regular travel between your home and a 'normal place of work' without it being taxed. You need to go and look at the HMRC rules regarding reimbursement of travel expenses and what is allowable.

Expenses and benefits: travel and subsistence

Tax and reporting rules for employers who provide transport subsistence expenses for employees.

www.gov.uk

"... All non-business travel is counted as private. This includes the journey between an employee’s home and permanent workplace. ..."

The £2k that was sacrificed will be treated as having been spent on private travel, and that is a taxable benefit. There can be no tax saving, which is why you won't find an employer that offers such a scheme. Consultants and contractors doing project work at client sites can have their commuting treated as an allowable business expense subject to certain limits - go and look for the "24 month rule".
I have been through all this, including projects at client sites that went over the 24 month limit, at which point my employer covered the tax liabilities on my behalf so that I was not losing anything peronally. The tax they were paying also had to be treated as taxed income and the 'grossing up' calculation meant my expenses claims were subject to a marginal tax rate of something like 90%.

We seem to be at cross purposes here. I know you cannot salary sacrifice a season ticket. The question you posed seemed to be asking a general question about how salary sacrifice works, apologies for the misunderstanding.

 

[AM9]

Given the fact that the majority of season tickets are already discounted to permit Anytime travel at Off-peak prices, gifting another 20-40% would be seen as ridiculous, especially that provision of capacity during the peaks is the major cause of virtually every railway in the world requiring government support.

 

[Richardr]

The flaw in your argument is that the £2k you sacrificed *cannot* be spent on a season ticket for regular travel between your home and a 'normal place of work' without it being taxed. You need to go and look at the HMRC rules regarding reimbursement of travel expenses and what is allowable.

I think we all know that. This discussion is that the opening post wants to change the rules so that season tickets can be paid out of salary sacrifice, not what the existing tax rules are.

 

[yorksrob]

Out of interest, what's the logic behind motorists receiving this ?

 

[stuu]

Out of interest, what's the logic behind motorists receiving this ?

I would guess that it's to enable people have the means to get to work in the first place - but that isn't how it works in practice. I mean that it's a way to help people own a car which is essential in a lot of the country. The cycle to work scheme works on a similar basis.

By contrast the actual getting to work costs (petrol and day to day running costs), are not subsidised, which is vaguely equivalent to a season ticket being the cost of actually getting to work.

Of course it is mostly works as a nice tax break for higher earners, not for someone getting a job in some distant warehouse on minimum wage

 

[Bletchleyite]

Commuting is to be encouraged because it relieves housing demand in the central urban area. Without affordable transport there is no way to accommodate the growing workforce in Zones 1-2!

I think you may have missed the point. Commuting is bad in a few key ways - unnecessary travel, mental health (lack of sleep) and poor work-life balance - and can be replaced for most office workers by hybrid working with home working (and local co-working hubs if people prefer being among others) and travel to the office once or twice a week for key meetings etc.

Edit: providing for the peaky demand of daily commuting is also expensive, with units that do one round trip a day.

Thus, it's the Anytime Day Return, not the season ticket, that should be cheaper. I tend these days towards the idea that this should be reduced to 1/5 of a weekly and weeklies abolished.

 

[miklcct]

I think you may have missed the point. Commuting is bad in a few key ways - unnecessary travel, mental health (lack of sleep) and poor work-life balance - and can be replaced for most office workers by hybrid working with home working (and local co-working hubs if people prefer being among others) and travel to the office once or twice a week for key meetings etc.

Thus, it's the Anytime Day Return, not the season ticket, that should be cheaper. I tend these days towards the idea that this should be reduced to 1/5 of a weekly and weeklies abolished.

So the alternative to commuting is to build lots and lots of skyscrapers in Zone 2-3, making London as dense as Hong Kong and the like. Will it be more costly instead?

Hybrid working only works in a few industries like software, finance and the like. There are still a lot of jobs which can't be done remotely.

 

[dastocks]

I think we all know that. This discussion is that the opening post wants to change the rules so that season tickets can be paid out of salary sacrifice, not what the existing tax rules are.

Sorry, I missed that subtle distinction in the OP.
The reason not to do it for season tickets is that it would encourage a form of travel that is already heavily subsidised and the tax benefit would effectively be targeted at people travelling to well-paid jobs in cities. I think that, nationwide, less than 10% of commuting is by rail and most of that happens in London.

A more targeted approach might be to impose workplace taxation (to be paid by the employer) on things like parking spaces and to mandate other schemes that favour public transport usage. For example, my employer provides free shuttle buses to nearby bus/rail stations and a small (taxable) allowance that I can claim for any day that I commute by public transport. Making an allowance of this kind tax-free and mandatory for lower paid employees might be a more acceptable option, but it would be a nightmare to set up the rules and for the employer to administer.

Of course it is mostly works as a nice tax break for higher earners, not for someone getting a job in some distant warehouse on minimum wage

In terms of 'cost' to HM Treasury it's probably fairly neutral because it encourages the sale of cars and fuel, which are big earners in terms of taxation.