Concurrent student loan repayments
19 March 2015
A CIPP member recently asked for clarification on the situation where an employee has both a Plan 1 and Plan 2 student loan.
From 2016 student loan repayments will be calculated against two thresholds depending on the year and where in the UK the loan was taken out.
In addition to the existing threshold, currently £16,910 (from 6 April £17,335) a new threshold of £21,000 will be introduced to the student loans repayment process to handle the collection of the new Higher Education loans (England and Wales only) and accommodate 24+ Advanced Learning loans (England only).
Loans taken out with the £16,910 threshold will be referred to as ‘Plan 1’ and those with the new £21,000 threshold will be referred to as ‘Plan 2’.
Student loan deductions will only be made on one plan type at any time and can change between plan types in-year.
Employers will need the capability to make sure they know which threshold should be applied from 6 April 2016 to make the student loan deductions for either Plan 1 or Plan 2 loans and to return the repayment information into HMRC as they do currently through their payroll submissions.
During the tax year 2015-2016 HMRC will send out three types of start notifications:
1. Existing start notifications for starts from 6 April 2015
2. New start notifications issued for starts from 6 April 2016 stating the borrower repayments should be based on Plan 1
3. New start notifications issued for starts from 6 April 2016 stating the borrower repayments should be based on Plan 2
Notifications stated in 2 and 3 will be issued in sufficient time to allow employers to start deductions from 6 April 2016.
Where an employee has both a Plan 1 loan and a Plan 2 loan, the repayments work slightly differently.
There is no repayment on earnings below the Plan 1 threshold.
The repayment on earnings between the Plan 1 threshold and the Plan 2 threshold are calculated as for Plan 1 and applied to the Plan 1 loan.
The repayment on earnings above the Plan 2 threshold are calculated as for Plan 2 and applied to the Plan 2 loan.
This means that the repayment for the Plan 1 loan remains constant at the Plan 2 threshold level and does not increase with earnings.