Contractors' Questions: Can my limited company pay the annual train fare?

Contractor’s Question: My commuting train ticket costs £750 a month but I could make quite a saving if I bought an annual ticket, which costs £8,250. As I don’t currently take a salary from my limited company, could the company pay for my travel?

Expert’s Answer: Making a direct payment from your company, on your behalf, to the rail operator would mean you’d have to process it through your company’s payroll and it would attract NICs. If you did this, your company must still report the benefit in kind on the annual P11D form, which means you would need to include the cost as income on your personal tax return.

Alternatively, you could make the £8,250 payment yourself and get the company to reimburse you, though the amount reimbursed would still have to be processed through the payroll. In this scenario, it would be classed as salary, so income tax and NICs would be levied. The payment of NICs and income tax would arise immediately but the company would not need to report the benefit in kind.

The main difference between the two avenues outlined is the timing of any tax payments. If the money goes through the payroll, it will be taxed in the month it is processed. But if you declare the money personally, on your tax return, the tax will be paid in January following the end of the tax year. In the event that this is your only source of income, no tax will be payable because the amount you refer to is below the personal allowance.

Employers often issue loans to employees in order for them to buy train tickets, and employees repay the money through deductions from their salary during the year. But in your case, your company would have to pay a notional salary on a monthly basis and then deduct the ticket repayments.

The expert was Jon Dawson, partner at Top 20 chartered accountancy firm Kingston Smith LLP.