Student Loan Changes 2016 – 2017
The new tax year means payroll will be responsible for the collection of two Income Contingent Student Loan Plan types through the payroll.
Plan 1
These loans will have been taken out before September 2012 and are applicable UK wide. For 2016-17, these Loans will have an annual threshold of £17,495 before they become repayable.
Plan 2
These loans will have been taken out post-September 2012 with the ex-student resident in England and Wales – this was the time when tuition fees were increased and capped at £9,000 per year in those jurisdictions.
From April 2016, employers and payroll software will be responsible for the collection of two Plan types:
- Plan 1 with a threshold of £17,495 per annum
- Plan 2 with a threshold of £21,000 per annum
While the obligation for repaying the correct loan is on the ex-student, the two Plan types pose a new burden on employers. This burden is the vital importance of identifying the Plan type before the first deduction is made in the payroll.
Current starter checklist
The current starter checklist on the HMRC website requires the ex-student to only make one yes or no declaration regarding student loans. The checklist advises the ex-student to answer ‘no’ if they are making repayments directly to the student loans company (SLC).
HMRC are amending the starter checklist for 2016-17.
2016-17 starter checklist
HMRC have recently released the ‘yes’ or ‘no’ declarations that the ex-student will have to make on starting employment with regard to the repayment of any student loan they have:
Declaration 1 – Do you have a student loan which is not fully repaid?
Simply, if the new ex-student / new employee does not have a student loan of any type then there are no reasons for repayment.
Declaration 2 – Are you repaying your student loan direct to the student loans company by agreed monthly instalments?
Generally, if the ex-student is now an employee, repayments will be made through the payroll. For people that were previously self-employed or working overseas, ex-students are required to make repayments directly to the student loans company (SLC).
If the ex-student / new employee says they are making repayments directly to the SLC, they should indicate ‘yes’ and no deduction should be taken through the payroll until HMRC advise otherwise via the student loan notice SL1.
Declaration 3 – What type of student loan do you have?
If the ex-student / new employee does have a Student Loan that they need to repay, this is the part of the declaration where they will indicate which type of student loan plan they have.
Employers should not offer advice regarding Plan types. The student loan is a personal debt that is taken out between an individual and the government. In the event that the ex-student / new employee is unable to identify the Plan type, they should be advised that, by default, they will have deductions based on Plan 1 with the lower threshold.
The SLC website will tell ex students what their Plan type is.
Declaration 4 – Did you finish your studies before last 06 April?
A student loan does not become repayable until the April following the year in which the ex-student either finished or left their course of further education. Therefore, this is an important declaration that needs to be considered. They may have a student loan and be able to identify the Plan type, but it may be that there is no legal obligation for them to start repaying.
Employer action
The new starter checklist will be available on the Gov.uk website from late February 2016. The starter checklist is not a legal requirement and employers are free to obtain the necessary information in whichever way they choose. With regard to student loans, there are only two bits of information that are needed:
- Is there a student loan that needs to be repaid?
- If so, is it Plan 1 or Plan 2?
Ascertaining the correct Plan type is essential right at the very start of employment.
The P45 format is not being amended. HMRC advise that every new starter should be asked the student loan declaration information.
