Student loans payroll deductions - what plan are they on?
Reporting the correct student loan plan is essential.
Payroll software will generally handle student loan deductions quite efficiently but it will always rely on human input of the correct student loan plan. If this is wrong then the deductions may also be incorrect. Getting the deduction right is important for many reasons including that the Education (Student Loans) (Repayment) Regulations 2009 provide for penalties for error offences where an employer fraudulently or negligently:
makes incorrect deductions
makes an incorrect return of Student Loan deductions.
How do we know which plan the student is on?
Student Loan deductions should be made from the next available payday using the correct plan type However, how do you find out which plan is correct?
The reality is that you may have to rely on information from the student to tell you. HMRC give the following guidance on the options to use:
your new employee’s P45 shows deductions should continue - ask your employee to confirm their plan type
your new employee tells you they’re repaying a Student Loan - ask your employee to confirm their plan type
your new employee fills in a starter checklist showing they have a Student Loan - the checklist should tell you which plan type to use
HMRC sends you form SL1 ‘Start Notice’ - this will tell you which plan type to use
you receive a Generic Notification Service student loan reminder - ask your employee to confirm their plan type.
Why is the plan type important?
The two plans have different thresholds so using the wrong plan will make a big difference. The difference is:
With effect from April 2018, the thresholds for making Student Loan deductions are:
Plan 1 - £18,330 annually (£1527.50 a month or £352.50 a week)
This generally applies to:
an English or Welsh student who started your undergraduate course before 1 September 2012
a Scottish or Northern Irish student.
Plan 2 – £25,000 annually (£2083.33 a month or £480.76 a week)
Plan 2 applies to English or Welsh students who started undergraduate courses on or after 1 September 2012.
Remember that the figure to use for deductions is the same gross pay amount that you would use to calculate your employer’s secondary Class 1 National Insurance contributions (NICs).
If your employee doesn’t know which plan type they’re on, ask them to check the Student Loan Company (SLC). If they’re still unable to confirm their plan type, start making deductions using Plan type 1 until you receive further instructions from HMRC.