New student loan plans take effect

Newsletter issue - May 2016

Repayment of student loans is a shared responsibility between the Student Loans Company (SLC) and HMRC. Employers have an obligation to deduct student loan repayments in certain circumstances and to account for such payments 'in like manner as income tax payable under the Taxes Acts' (Education (Student Loans) (Repayment) Regulations 2000, SI 2000/944, reg 14).

With effect from 2016/2017 there are two plan types for student loan repayments:

Plan 1 loans are pre-September 2012 Income Contingent Student Loans. Loans taken out post-September 2012 in England and Wales have the higher threshold of £21,000. Previously these have been repaid outside of the payroll directly to the SLC. From April 2016, they will be calculated and repaid via deduction from the payroll. So, from April 2016, employers and payroll software will have to cope with both types of plans.

Broadly, employers are responsible for:

Employers are not responsible for deciding that employees have to make student loan repayments or handling employees' student loan queries.

Student loan deductions are made from gross pay, alongside tax and NIC. Deductions are rounded down to the nearest pound. Deductions are non-cumulative, and so employers can ignore the question of amounts already deducted. HMRC provide tables, and the employer CD-ROM can be used to calculate the deduction which (because of rounding) may not be exactly 1/52 of the annual amount.

If an employee has two jobs, the employer does not need to be concerned with the employee's other income, but should calculate the deduction based only on amounts paid by him. However, if the employee has two employments with the same employer, these should be aggregated for student loan purposes if they are aggregated for NIC purposes.

Employers are required to collect student loan repayments through the PAYE system by making deductions of 9% from an employee's pay to the extent that earnings exceed the relevant threshold (see above).

Each pay day is looked at separately, and so repayments may vary according to how much the employee has been paid in that week or month. If income falls below the starting limit for that week/month, the employer should not make a deduction.

Example

James leaves university in June 2016, and starts a new job in August 2016 earning £2,000 a month (£24,000 a year).

His student loan repayments will commence in April 2017 and will be calculated as follows:

Income in April 2017: £2,000 -£1,750 (starting limit) = £250

£250 × 9% = £22.50 repaid in April 2017.

Get a fixed quote

Fixed prices for agreed services

FAIR FEE POLICY. We believe you should always be in control of your fees with no surprises. You are entitled to a competitive fixed quote for agreed services, which is exactly what we charge, not a penny more. Most clients choose this option although if you prefer to pay an hourly rate we can arrange that too.

To receive a fixed quote for your specific circumstances either arrange a Free No Obligation Consultation or submit the form below. The form is designed for most of the routine accountancy services. If you require something more specialist, please contact us directly. If necessary we will contact you for further information.

If you are a new start up business, please use estimates. Full quotes are provided within 2 working days.

FIXED QUOTE REQUEST FORM »

Make more, keep more, work less

Get the right advice and take action

MAKE MORE

Have clear goals including long, medium and short term for what you want to achieve and develop a roadmap to get you there... read more »


KEEP MORE

Use our Tax Planning Service to ensure you don’t pay a penny more in tax than is necessary... read more »


WORK LESS

Work ON your business and not IN your business - work ON your systems so the systems run the business and your people run the systems, leaving you free to have more holidays... read more »

Start Up

Are you looking to start a new business?

Choose your business size to see how we can help you

Small

Key points for our small business clients to know

Choose your business size to see how we can help you

Medium

Help and assistance for medium sized businesses

Choose your business size to see how we can help you

Large

See our extensive range of services for your needs

Choose your business size to see how we can help you