Student loan repayment arrangement altered by HMRC

HM Revenue & Customs (HMRC) has announced that it is making changes to the deduction of student loan repayments from employees’ pay with the introduction of two types of student loan.

These have been referred to as plan one and plan two and relate to each individual employee’s student loan arrangements. These new changes will come into effect from the 2016/17 tax year.

The new student loan repayment scheme requires employers to find out what type of loan the employee has to ensure that the correct deductions are made.

Repayment plan one has an annual earnings threshold of £17,495, while plan two has a higher threshold of £21,000.

Typically plan two applies to those who started their study course after September 2012, when the government increased university fees to £9,000 a year; however this may not be the case for all employees.

To correctly work out an employee’s earnings that student loan reductions are due on, employers are advised to use the same gross pay amount used to calculate national insurance contributions.

If the employee’s plan type is unknown, the student loan company should be contacted or deductions should initially be made using plan one, according to HMRC.

Despite the changes HMRC has admitted to having problems with the PAYE online system, with employers experiencing issues when trying to download employer notices including P6, student loan, generic notifications and real time information (RTI) notifications.

Recently released national insurance numbers beginning with KC, that relate to individuals such as graduates are also causing employers problems when submitting RTI data for an employee with this particular national insurance number.

LINK:  Student Loan Repayments