Student loan repayment arrangement altered by HMRC

HM Revenue & Customs (HMRC) has announced that it is making changes to the deduction of student loan repayments from employees’ pay with the introduction of two types of student loan.

These have been referred to as ‘plan one’ and ‘plan two’ and relate to each individual employee’s student loan arrangements. The changes will come into effect during the current tax year.

The new student loan repayment scheme requires employers to find out what type of loan the employee has, to ensure that the correct deductions are made.

‘Plan one’ has an annual earnings threshold of £17,495, while ‘plan two’ has a higher threshold of £21,000.

Typically, ‘plan two’ applies to students who started their study course after September 2012, when the government increased university fees to £9,000 a year; however, this may not be the case for all employees.

To work out employee earnings on which reductions for student loans are due, employers are advised to use the same gross pay amount used to calculate national insurance (NI) contributions.

If the employee’s plan type is unknown, the student loan company should be contacted or deductions should initially be made using ‘plan one’, according to HMRC.

Despite the changes, HMRC has admitted to having problems with the PAYE online system, with employers experiencing issues when trying to download employer notices including P6, student loan, generic notifications and real time information (RTI) notifications.

Recently released national insurance numbers beginning with KC, which relate to individuals including graduates, are also causing employers problems when submitting RTI data for employees whose NI numbers have this particular prefix.

Milsted Langdon’s payroll bureau is able to assist with all wage, tax and National Insurance matters affecting individuals and businesses of all sizes.

Our payroll experts can also advise on how HMRC’s student loan schemes apply and help employers to calculate deductions correctly.

Please contact our payroll team for advice.

LINK: Student Loan Repayments

Posted in News.