Student Loans

How Employers Fulfill Roles for Student Loans Threshold & Deductions

If you’re an employer, and you’re looking to hire new people, this post is for you. The collection of student loans and repayments is one of the major tasks they have at hand. 

There are now three types of student loans for which employers may be responsible for deducting loan repayments from an employee’s pay. These are:


What are repayment thresholds?

Employees are supposed to pay back a student loan if any income exceeds the threshold for a particular loan type.

Each loan has its own repayment threshold. Take a look at some of these thresholds:

  Annual Monthly Weekly
Plan 1 Student Loan £18,935 £1,577.91 £364.13
Plan 2 Student Loan £25,725 £2,143.75 £494.71
Post-graduate Loan £21,000 £1,750.00 £403.84

Repayments are made at the rate of 9% on income in excess of the threshold for Plan 1 and Plan 2 Student loans, and at a rate of 6% on income in excess of the threshold for PGLs.

Where an employee has both a student loan and a PGL, deductions will be made at the combined rate of 15% where income exceeds the higher loan threshold.


Start off Deductions

An employer will need to start making deductions in respect of a student or PGL if any of the following apply:

  • New employees take on as ‘Y’ in the student loan box on their P45;
  • A new employee tells the employer they are repaying a student loan;
  • New employee completes a starter checklist confirming that they have a student loan;
  • The employer receives an SL1 start notice from HMRC;
  • The employer receives a PGL1 start notice from HMRC; or
  • The employer receives a Generic Notification Service Student Loan reminder.

The employer should check they are aware of the type of loan that the employee has, confirming the loan type with the employee where necessary.


What are the Stopping Deductions?

The employer should only stop making student loan deductions if they receive an SL2 stop notice or a PGL2 stop notice from HMRC; deductions should not be suspended at the request of the employee.

Where a stop notice is received, the employer should stop the deductions from the first payday from which it is practical to do so.


Paying deductions over to HMRC

The employer should pay amounts deducted from employees’ pay in respect of student loan deductions over to HMRC, together with payment of tax and National Insurance, taking care to ensure that the payment reaches HMRC by 22nd month where payment is made electronically or by 19th month where payment is made by cheque.


Are there Any Leavers Involved?

If an employee in respect of whom student loan or PGL repayments are being deducted leaves, the employer should enter a ‘Y’ in box 5 of the P45.

This will tell the new employer to make deductions for student loan repayments. A ‘Y’ should be entered in this box even if the employee’s income is below the repayment threshold so no deductions have yet been made. An entry should not be made on the P45 if a stop notice has been received.

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