How should your business process student loans?


Posted in News

Do you employ graduates? Here’s a handy guide to help your payroll department manage student loan repayments.

  1. What’s the plan?

From tax year 2016/17 there are two types of student loan plan, with differing thresholds for paying back a loan:

  • Plan 1: repayments are effective when the employee earns £17,495 (that’s £1,457 a month or £336 per week)
  • Plan 2: repayments are effective when the employee earns £21,000 (that’s £1,750 a month or £403 per week)

To find out which plan your employee is on:

  • Ask them
  • If they don’t know, ask them to contact the Student Loans Company (SLC)
  • Alternatively, you may receive a Start Notice (SL1) from HMRC. This will confirm the plan type
  1. Is there a gap between an employee starting work and you finding out about their student loan? Start making deductions from the next payroll run. Don’t make any additional deductions for arrears.
  1. How much should you deduct? The HMRC Start Notice will list the correct amount to deduct, or you can find the correct deductions for each plan here.
  1. Stop making deductions when:
  • You receive a Stop Notice (SL2) from HMRC
  • HMRC asks you to stop making deductions. They will do this in writing, or via a phone call followed up in writing
  • You’re an Educational Institution or Authority and you have received a letter from the SLC telling you that the teacher has been accepted by the Repayment of Teachers’ Loan scheme

Need help managing student loans repayment processing? Talk to us about outsourcing your payroll.