Student loans: The learning continues

22 October 2018

Student loans (SLs) continue to be part of the government’s financial support package for students in higher education in the UK. HMRC is responsible for collecting repayments of income-contingent student loans in cases where the borrower is within the UK tax system and is no longer in higher education.

The tax system will see the first repayments begin for a new loan type from 6 April 2019: the postgraduate loan.

Postgraduate loans (PGL)

There are two types of income-contingent student loan for postgraduate study in England and Wales.

  • Postgraduate master’s loans were introduced in the 2016-17 academic year for taught master’s courses. The total loan for the duration of the course was initially £10,000 but has increased since and varies in Wales.
  • Postgraduate doctoral loans of up to £25,000 were introduced for the 2018-19 academic year for taught and/or research-based courses. They are available for courses beginning on or after 1 August 2018.

The repayment rate for postgraduate loans is to be 6%, which is applied to income above a £21,000 threshold. They are repaid concurrently with other undergraduate student loans (Plan 1 or Plan 2). If an individual has more than one postgraduate loan, only one amount of 6% is taken that covers both loans.

Student loan threshold changes for 2019-20

The Department for Education (DfE) confirmed earlier in the year what the increases will be to the thresholds for income-contingent student loans for undergraduate loans (UGL) for the 2019-2020 tax year.

The current threshold for 2018-19 for Plan 1 is £18,330, which will rise to £18,935 from April 2019. Earnings above £18,935 will be calculated at 9%.

The current threshold for Plan 2 (post-2012 loans in England and Wales) is £25,000, which will rise to £25,725 from April 2019. Earnings above £25,725 will also be calculated at 9%.

The student loan deductions are calculated using earnings above the relevant earnings threshold, calculated on a pay period basis on earnings that are subject to National Insurance contributions.

 

Scottish Plan 1 loans

In September 2017, the Scottish government published its ‘programme for government 2017-18’ in which it stated its intention to increase the repayment threshold for Student Loans to £22,000 by the end of the Parliament. (Scotland has Plan 1 Student Loans only, as does Northern Ireland).

Earlier this year following a review of student support, the First Minister announced the Scottish government’s commitment to increase the threshold to £25,000 instead to take effect from April 2021.

Implications for employers

The introduction of a unique threshold for Plan 1 Student Loans in Scotland will require Scottish Plan 1 repayments to be identified separately to employers and by employers on their Full Payment Submission (FPS), which will create additional complexity.

It is not yet clear whether the Scottish Plan 1 repayment threshold will increase from the Plan 1 threshold for the rest of the UK to £25,000 in one stage, in April 2021, or begin to diverge in earlier tax years.

 

PAYE desktop viewer update

The latest version of the PAYE desktop viewer version 2.45 includes two new messages on the student loans generic notification service (GNS). GNS messages are a NUDGE (i.e. not an authorisation) from HMRC to employers who appear not to be making a deduction for student loans where HMRC systems suggest they should be.

HMRC has issued a reminder in their October employer bulletin to ensure employers are operating using the latest version.

 

Operating off-payroll (IR35)

Public sector employers processing the pay of workers engaged through their own companies may receive a generic notification relating to student loan repayments for these workers. Ignore these messages as the worker is not an employee and they will repay their student loan, either via self assessment or from employment earnings paid to them by their company.

 

Overseas implications

Whilst the vast majority of borrowers will repay their loans through the UK tax system, either through the RTI system and payroll or via self assessment, where an individual leaves the UK and falls outside of the UK tax system they must contact the Student Loan Company (SLC) to make arrangements to repay their loan directly to SLC.

Much work has been carried out by the SLC and HMRC in recent years to improve the repayment process for overseas workers and it should be noted that the process is the same for all four UK domiciles and all plan types.

 

Interaction with priority orders

HMRC was asked via the student loan forum exactly what the priority would be for all student loan deductions where a priority order is of a specified amount and with an identified level of protected earnings.

HMRC confirmed that the option for employers and software developers to adopt from April 2019 onwards will be for PGL repayments to be prioritised over UGL (Plan 1 and 2) repayments; this means that the PGL deduction should be made ahead of the UGL.

HMRC guidance will be updated to incorporate this and details are anticipated to be published in a future edition of the employer bulletin.

 

The role of the P forms

HMRC has concluded that no changes will be made to the P45 in recognition that the PGL loans will run concurrently with existing plans although work is still ongoing to see how or indeed whether the P60 specification will be adapted to take account of PGL loan amounts deducted.

HMRC emphasise the importance of employers issuing a starter checklist to new employees where they have a P45 that indicates that a student loan notice has been issued. It remains the responsibility of the employee to inform the employer what loan or loans are in repayment. Employer processes should be designed to encourage this flow of information.

HMRC has confirmed that in all instances they will issue form SL1 to authorise an employer to begin making deduction where the relevant threshold is exceeded. The SL1 will identify which loan repayment is being actioned.

 

This article was originally written for Accounting WEB (22 October 2018)