Student Loans and PAYE Payroll
Student Loans and PAYE Payroll
HMRC has issued an update to employers which clarifies how to deal with student loan or postgraduate loan start notices, called SL1 or PGL1.
It is important to check and use the ‘correct loan or plan type’ on the start notice, and the start date shown on the notice to ensure that the employee pays the correct amount.
If the employee’s earnings are:
- below the respective student loan and postgraduate loan thresholds, you should update the employee’s payroll record to show they have a student loan and/or postgraduate loan and file the start notice.
- above the respective student loan and postgraduate loan thresholds, and deductions have not been taken, HMRC will send a generic notification service prompt as a reminder — if deductions still have not started, HMRC may contact the employer directly.
Deductions should continue until HMRC tells you to stop.
If an employer has not received a start notice from HMRC, but their employee informs them that they have a student loan, ask them which plan or loan type they have.
If the employee is unsure about the correct plan or loan type they should be repaying, they can check by logging on to their student loan online account.
It is essential to update your payroll software to start deducting and check all future start notices received from HMRC to make sure the employee is paying the correct amount.
If the employee claims never to have had a student loan, the employer must start making deductions in line with the start notice and continue doing so unless HMRC says otherwise and keep the SL1 or PGL1 start notice on file.
When the employee is on more than one plan, start deductions for the plan with the lowest recovery threshold until you get a SL1.
It is important not to stop making deductions because an employee asks for the repayments to be stopped. Until HMRC ask for the deductions to be stopped they must continue and a refund can be requested if any over payment has been made.
Plan and loan types and thresholds
With effect from April 2024, the thresholds for making student loan deductions are:
- Plan 1 — £24,990 annually (£2,082.50 pcm or £480.57 a week)
- Plan 2 — £27,295 annually (£2,274.58 pcm or £524.90 a week)
- Plan 4 — £31,395 annually (£2,616.25 pcm or £603.75 a week)
Employees repay 9% of the amount they earn over the threshold for Plan 1, 2 and 4.
Postgraduate loans — £21,000 annually (£1,750 a month or £403.84 a week).
Employees repay 6% of the amount they earn over the threshold for a postgraduate loan.
Companies operating off-payroll working are not responsible for deducting student or postgraduate loan repayments for workers engaged through their own companies. The worker will account for student loan obligations in their own tax return.