PAYROLL INSIGHT
The basics of student loan deductions
Jill Smith MCIPPdip, CIPP policy manager, explains the rules
T his article aims to provide an understanding of the basic guidelines of the employer’s duties when they have an employee for whom a student loan deduction (SLD) is to be made from their pay. collecting repayments on behalf of the Student Loan Company (SLC) since 2000, with HM Revenue & Customs (HMRC) being the contact for information and to where the amounts deducted from employees’ earnings are paid. In addition to repayments deducted from earnings through the payroll, there are also two other ways that repayments may be collected: by HMRC through self- assessment, or direct through the SLC. Employers are not responsible for identifying employees who should be making student loan repayments. When a student completes or leaves a course, the SLC passes details to HMRC which checks its systems to trace the borrower. The employer is responsible for making SLDs from an employee’s earnings, keeping records of the deductions made and other relative documents, paying the deductions over to HMRC and providing details of the deductions within each full payment submission (FPS). The SLD should also be recorded as a separate item, clearly labelled on the employee’s pay statement (payslip) as a deduction from pay. Notification to start a SLD There are several ways an employer can be notified to begin making SLDs: ● Start notice (SL1) – If an employer receives a start notice from HMRC SLDs should commence from the first available payday after the date specified in the notice. The notice will state whether the Responsibilities Employers have been involved in
loan is ‘plan 1’ or ‘plan 2’ or, from April 2019, a post-graduate loan (PGL). ● Form P45 – If an employer receives a form P45 for a new employee which shows a ‘Y’ in the student loan indicator box, student loan deductions are to apply from the next available payday. The employer should not deduct any loan arrears if the P45 is received after the first payday. ...SLC passes details to HMRC which checks its systems to trace the borrower As the P45 form does not indicate whether the student loan is plan 1 or plan 2, the employee must provide the employer with this information so that the correct earnings threshold can be applied. If the employee does not tell the employer which type of loan it is, the employer must treat it as plan 1 unless and until HMRC sends a SL1 notice. ● Starter checklist – Employers can use HMRC’s starter checklist, which requires new starters to answer questions about having a student loan, whether it is plan 1 or plan 2, when their studies ended and whether they are repaying the loan directly to the SLC (revised from April 2019). Thresholds Student loans are calculated on an employee’s earnings for National Insurance contributions (NICs) purposes. When an employer sets up a SLD for an employee, it must specify which plan they are on and repayments will be deducted based on the plan applicable. ● Plan 1 – The current threshold for
2018–19 is £18,330, which will rise to £18,935 from April 2019, with earnings above this threshold subject to SLD calculated at 9%. ● Plan 2 – The current threshold for 2018–19 is £25,000, which will rise to £25,725 from April 2019, with earnings above this threshold subject to SLD calculated at 9%. ● PGL – The threshold for 2019–20 is £21,000, with earnings above this threshold subject to SLD calculated at 9%. GNS prompts HMRC can check an employer’s FPS returns and identify that SLDs are not being made for an employee when it expects them to be. HMRC may then send an electronic generic notification service (GNS) message to prompt the employer to check and make the correct deductions for future pay periods. Two prompts may be sent, followed by a telephone call. It is important to note that the GNS employer prompt is not an instruction to begin making deductions, nor is it a SL1 notice. Also, HMRC cannot tell whether the employer has a valid reason for not making the deductions (such as there being a council tax attachment of earnings order in place). On receiving a GNS prompt, the employer should attempt to locate and then act on the SL1 notice (if appropriate). If the SL1 cannot be found, the employer should contact HMRC and ask for another one. Alternatively, the employer could ask the employee to complete the relevant parts of a starter checklist to obtain authorisation to begin making deductions. Notification to stop a SLD ● Stop notice (SL2) – An employer receiving a SL2 notice from HMRC must stop making deductions from the first
| Professional in Payroll, Pensions and Reward | February 2019 | Issue 47 24
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