Student loan repayments

When a new employee starts work they should present the employer with a form P45. If they don’t have a P45 for the current tax year, the employer should ask the new employee to complete a starter checklist to collect the information required to work out what PAYE code to apply.

However, where the individual has a student loan to repay, the form P45 won’t tell the employer whether the loan is a plan 1 or plan 2 loan. The difference is important because the current gross pay threshold for repayment of plan 1 loans is £17,775, whereas the gross pay threshold for repayment of plan 2 loans is £21,000. The pay threshold for plan 2 loans will increase to £25,000 on 6 April 2018, and the plan 1 threshold increases to £18,330 on the same date.

It’s good practice to either use the starter checklist for all new employees, or to have a question about student loans embedded in other employee induction forms, so the information is captured as soon as possible. Beware of P45 information being used to over-write the student loan plan data reported through other channels.

The employer should not start making deductions for student loan repayments until they have received a SL1 start notice from HMRC, which will normally arrive as an online notice. Employers can miss these SL1 and SL2 (stop) notices if they have changed their email address, or don’t check the generic notification service (GNS) for reminders.

Written by the Tax Advice Network