If you employ graduates, you will almost certainly be making student loan repayment deductions from their wages, which will go directly to HMRC.
HMRC has introduced a new system for the 2016/17 tax year, and recently issued updated guidance to all employers on correctly implementing it.
The new rules follow the introduction of Plan 2 student loans, whose annual earnings repayment threshold is £21,000 (£1,750 a month or £403 per week).
The plan 1 annual earnings repayment threshold is £17,495 (£1,457 a month or £336 per week).
Plan 2 loans usually apply to students who started courses after the government increased annual university fees to £9,000 in 2012, but employers must check each individual employee’s plan type to ensure the correct deductions are being made.
You should therefore always ask your new employees to supply details of their student loans before starting work so their plan types can be identified and the relevant PAYE deduction arrangements made.
HMRC may send you a ‘Start Notice’ form SL1 which will contain the necessary details and a P45 from a former job will also indicate whether student loan repayments are being made, although the employee will still need to confirm which plan is in place.
The Student Loan Company (SLC) will also be able to supply student employees with their loan plan details.
If student loan details are unobtainable for any reason, you will need to make PAYE deductions under Plan 1 provisions until HMRC provides you with further instructions.
You must start making student loan deductions from the first possible payday after a new employee’s starting date. The repayment level of nine per cent of earnings applies to Plan 1 and Plan 2.
HMRC is advising employers to use the gross pay amount on which national insurance contributions are based to calculate employee earnings on which student loan reductions are due.
The new HMRC student loan repayment system is already up and running, so all employers must ensure they comply with its requirements through PAYE as soon as possible.
Salhan Accountants can provide you with expert advice on wage, tax and National Insurance matters. We can also help you to ensure your student loan repayment schemes comply with HMRC requirements.
Please ask us about our complete range of payroll services.
