Employers fulfil many collection roles for HMRC, one of which is the collection of student loan repayments.
There are now three types of student loans for which employers may be responsible for deducting loan repayments from an employee’s pay. These are:
- Plan 1 Student Loans;
- Plan 2 Student Loans; and
- Post-graduate Loans (PGLs).
Employees must make repayments in respect of a student loan when their income exceeds the threshold for their particular loan type. Each loan has its own repayment threshold. The thresholds are as follows:
|Plan 1 Student Loan||£18,935||£1,577.91||£364.13|
|Plan 2 Student Loan||£25,725||£2,143.75||£494.71|
Repayments are made at the rate of 9% on income in excess of the threshold for Plan 1 and Plan 2 Student loans, and at a rate of 6% on income in excess of the threshold for PGLs.
Where an employee has both a student loan and a PGL, deductions will be made at the combined rate of 15% where income exceeds the higher loan threshold.
An employer will need to start making deductions in respect of a student or PGL if any of the following apply:
- a new employee is taken on and has a ‘Y’ in the student loan box on their P45;
- a new employee tells the employer they are repaying a student loan;
- a new employee completes a starter checklist confirming that they have a student loan;
- the employer receives a SL1 start notice from HMRC;
- the employer receives a PGL1 start notice from HMRC; or
- the employer receives a Generic Notification Service Student Loan reminder.
employer should check they are aware of the type of loan that the employee has,
confirming the loan type with the employee where necessary.
The employer should only stop making student loan deductions if they receive a SL2 stop notice or a PGL2 stop notice from HMRC; deductions should not be suspended at the request of the employee.
Where a stop notice is received, the employer should stop the deductions from the first payday from which it is practical to do so.
Paying deductions over to HMRC
The employer should pay amounts deducted from employees’ pay in respect of student loan deductions over to HMRC, together with payment of tax and National Insurance, taking care to ensure that the payment reach HMRC by 22nd month where payment is made electronically or by 19th month where payment is made by cheque.
If an employee in respect of whom student loan or PGL repayments are being deducted leaves, the employer should enter a ‘Y’ in box 5 of the P45. This will tell the new employer to make deductions for student loan repayments. A ‘Y’ should be entered in this box even if the employee’s income is below the repayment threshold so no deductions have yet been made. An entry should not be made on the P45 if a stop notice has been received.
The same thresholds are used for self-employment so that is something to bear in mind when operating as a sole trader or extracting a salary and dividends from your limited company.