Payrolled Benefits, Self-Assessment and Student Loans

This is another article about Self-Assessment, specifically Student Loans and applies where:

  • A taxpayer has an obligation to complete a Self-Assessment return, and
  • They have an outstanding Student Loan balance (or Postgraduate Loan)
  • Some of the Loan repayment is calculated in the employer’s payroll but the balance is due because of information declared on the tax return and
  • The employer was payrolling benefits meaning the taxpayer’s taxable income was inflated

HMRC have advised their system calculates the Student Loan due based on taxable pay. This is incorrect. Student Loan repayments are calculated by referring to the pay subject to National insurance. If the employer had payrolled any benefits, HMRC’s systems are calculating the Student Loan balancing payment on an inflated and incorrect figure.

If this applies, September 2023’s Agent Update advised some taxpayers may have overpaid their Loans. They have produced a document which contains workarounds when completing the Self-Assessment tax return and these must be used by the taxpayer / accountant. Where a taxpayer meets all the above criteria, the workarounds all require you to know the value of payrolled benefits your employer has put through the payroll.

HMRC are writing to taxpayers who may have overpaid their Student Loan because of their system error. They will be looking at tax returns that have already been submitted, even for tax year 2022/23. Their letter will give the option of a repayment or to leave the overpayment that reduces the Student Loan balance (like an overpayment to a mortgage would reduce the balance).

Taxpayers and accountants should note this is an HMRC system error and nothing they have done. The workarounds do mean that you will have to accommodate the system failings though.

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