Student loans collections specification for payroll software developers updated with guidance for use from 6 April 2021

30 October 2020

HMRC has updated details relating to the technical specification on student loans for software developers working with payroll software, to include guidance that should be used from 6 April 2021.

This includes information about the additional Student Loan Plan Type – Type four that is to be implemented from 6 April 2021. This will work in the same way as the other Student Loan Plan Types (one and two), and will be calculated at a rate of 9% of employee earnings that are subject to Class 1 National Insurance (NI) contributions above the threshold for that particular Plan Type of £25,000, for tax year 2021-22.

Employers can only operate one of Plan one, Plan two or Plan four, and must not process multiple Plans at any given time. A Postgraduate Loan, however, can be operated either on its own, or at the same time as one of the Student Loan Types (one, two or four).

An employer may be advised to start operating a Student Loan deduction in one of three ways:

  • Direct instruction by HMRC – who will issue an SL1 start notice to instruct an employer to start operating a Student Loan (Plan one, Plan two or Plan four). The SL1 will advise which Plan Type to operate. A PGL1 start notice will be issued by HMRC to advise an employer to begin operating a Postgraduate Loan. Automatically issued SL1 and PGL1 start notices will come from HMRC when a new employment is notified, even where deductions have already commenced
  • Instruction from a P45 – The employer should enquire with the new employee as to which types of loan are being repaid, and set up a Student Loan (Plan one, Plan two or Plan four) and / or a Postgraduate Loan as advised. The Starter Checklist should support this. Where an employee is unsure of the loan type, the employer must operate Plan one, and the employee should then liaise with the Student Loan Company (SLC) to confirm the correct loan types that should be actioned on their payroll record
  • Starter Checklist – The employer should operate the loan deductions from the information provided on the Starter Checklist

It is important to note that employees who are subject to the off-payroll working rules do not have their student loan repayments taken from them through payroll.

 


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