Student Loan Deductions

Student Loan Deductions

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One of my clients, an actor, paid £310 in Student Loans for 2010/2011. This came out of the tax calculation when the Tax Return was submitted and the deductions were collected by HMRC on behalf of the Student Loans Co. The client is currently working for a theatrical company and was surprised to find a deduction of £19 per week appearing on his payslip. Actors are treated as employed for NI purposes but as self-employed for income tax. I called HMRC's Agent's Helpline to see if they could explain how the deduction was arrived at, but they were unable to assist. If there is a change in PAYE coding, HMRC sends out a notice to the taxpayer and to his agent, but the Student Loan Co has not communicated with either of us. I feel this is very high-handed, as the final figure of the student loan repayment may be much lower than that now being projected. 

Does anyone have experience of this? How would a repayment be claimed? When I submit the 2012-2013 Tax Return, will there be a box for such payments made during the year? Presumably, then, HMRC may be able to net off the tax and the student loan repayments. The gentleman at the Agent's Helpline just did not know. If at any time my client is 'resting', he would certainly be grateful for the money then, rather than receive it after he has submitted his Tax Return, quite some months later.

Sam Merchant

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Tom McClelland
By TomMcClelland
06th Jun 2012 23:35

Student loan repayment would apply separately to each week

Student loan is like NI, in that the repayments are not operated cumulatively, but individually on each payment.

 

In the week(s) where the client repaid £19 student loan how much was their gross pay for that week?

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By sammerchant
08th Jun 2012 17:50

Student Loan Deductions

I see your point. If my client continued to earn that weekly sum for the whole year, even then the Student Loan deduction would not be justified. The deduction is calculated on the basis of employment, whereas my client is self-employed, and the net profit for the week/month/year would never be the same as the gross weekly rate being paid by the theatre company.

 

But, more importantly, my client is in a notoriously unreliable profession. Actors spend much time 'resting', i.e. unemployed. How then is it fair that they should suffer the deduction on what in a business would be turnover, not net profit?

 

I raised the same question with the HMRC Agents "Working Together" but nobody has deigned to reply.

 

Sam Merchant

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Tom McClelland
By TomMcClelland
08th Jun 2012 18:09

Fairness has nothing to do with it, unfortunately

I don't claim to understand the employment/self-employment status of actors, which seems to swirl around in the rules. But it seems that for the purposes of student loans the engagement in question is treated as employment and therefore attracts the automatic 9% deduction above c. £300/week.

I think you may be able to reclaim the student loan repayments after year end by getting an SA form in as quickly as possible so that HMRC can confirm that total income is lower than the annual repayment threshold and inform the SLC of this so that the excess repayments are returned.

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By sammerchant
13th Jun 2012 14:28

Student Loan Deductions

Fortunately the Taxation Faculty of ICAEW is taking the matter up with HMRC. I believe HMRC had not considered that some ex-students would fall into this category, where they are treated as employed for NIC purposes but self-employed for tax. Apparently, the instruction to deduct tax came from HMRC to the payroll administrators.

 

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By MarionMorrison
13th Jun 2012 14:48

Rebates from SLC

I think you can actually get SLC to reimburse an overpayment of Loan Repayments if this arises, but for certain the £19's would count as a payment towards his overall amount owed in Student Loan Repayments, so if the gig ran 10 weeks and he's paid £190 but his profits were identical to 2010/11 when he owed £310, you could claim a 'credit' for that and he'd only have £120 extra to pay, just as if a fully employed job would count it's deductions towards his overall situation.

We have had it happen on a couple of occasions and there've been over-repayments of student loan, but the amounts have never been worth contacting SLC and going through the hassle of getting back a couple of hundred.  It's not like it's overpaying tax or similar - this is his debt being repaid.  Although under the new £9K+ fees regime, repaying a student loan will become a joke for a lot of graduates, esp Actors!

What he can't do is get back any rebate that arose from voluntary repayments of outstanding loans.

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By sammerchant
02nd Jul 2012 17:38

Student Loan Deductions - Update

I have since discovered that it is the earnings for NIC that determine the Student Loan Deductions. I have also received the following reply from my initial query to the Working Together Team at HMRC

"We are grateful for your enquiry about the student loan repayment treatment of one of your clients who is an actor from whose earnings weekly deductions are being taken for the repayment of their student loan. In particular you have asked whether an immediate refund of those amounts can be made, or, if not, whether credit will be given in relation to those deductions when your client submits their Self Assessment (SA) return.

I regret that we are not yet ready to provide a definitive answer. This issue affects not only actors but other categories of persons who are earners for NICs purposes, but not for PAYE. We need to consider the position for those groups as well as actors.

Whilst we cannot comment specifically on individual cases, we’d like to assure you that we are actively considering your questions and will respond fully within the next 2 weeks."

I shall update the post when this is received.

Sam Merchant

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By MarionMorrison
02nd Jul 2012 22:42

Fascinating

and slightly worrying.  We have a very substantial number of clients with student loans who are in this twilight zone of Class 1'd self-employment.  Out of 100-150 I have seen student loan deductions in only a couple of cases.  That they might be considering altering this is a bit of a concern.  I will indeed keep an interest in this.

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By sammerchant
17th Jul 2012 09:43

Student Loan Deductions

I have now heard back from HMRC as follows

"We recently wrote to you to let you know that we have been actively considering the issues raised in your enquiry of 30 May. We cannot, of course, comment specifically on individual cases and I want to first set the context to the collection of student loan repayments. 

 

HMRC collects student loan repayments on all UK loans advanced through the Income Contingent Repayment (ICR) Scheme on behalf of the Department for Business, Innovation and Skills (BIS). The Student Loans Company (SLC) is responsible for maintaining the borrower accounts from application through to full repayment of the loans. The main rules governing how student loan repayments are collected are set out in the Education (Student Loans) (Repayment) Regulations 2009 No. 470 (the “2009 Regulations”).

 

In line with those Regulations, ICR borrowers become liable to start repaying their loans from the 6 April after they leave full-time higher education:

 

Part 3 of the 2009 Regulations sets out the repayment and collection requirements for borrowers who are SA customers – these include the self-employed and employees with high incomes.

 

Part 4 of the Regulations sets out the process for collecting repayments from employed borrowers. 

 

During those periods where a borrower is not in receipt of any earnings or earnings lower than the threshold no repayment deduction is made.

 

Where we find that a borrower is in a current employment, HMRC notifies their employer to start making deductions from the employee’s earnings. This is done using a ‘start’ form SL1 and is an automated process.

 

A borrower may find that both Parts 3 and 4 apply to them. The key thing to note in relation to the application of Part 4 of the 2009 Regulations is that it relies on a definition of employment and, in turn, earnings, which is derived from sections 3 and 9 of the Social Security Contributions and Benefits Act 1992. All repayments made by employer deduction in respect of borrower earnings which are taken into account for the purposes of calculating secondary class 1 NICs therefore attract student loan deductions under this part. This is irrespective of whether they are employed earners or are treated as such, for example, by virtue of the Social Security (Categorisation of Earners) Regulations 1978. The method by which loan repayments are then accounted for, again in accordance with regulation 42, is done in the same way as income tax is deducted from an employee’s earnings.

 

When it comes to calculating any further repayments due through self assessment, entertainers will be able to claim credit for any amounts deducted by an employer during the financial year by entering that amount in their SA return. Also, if employment earnings for the financial year are less than the annual threshold (currently £15,795), the borrower can apply to the SLC for a refund of deductions made by employer(s) after the end of the financial year. Evidence of earnings and student loan deductions will be required for SLC to consider the refund. Entertainers will not, however, be able to get a refund of amounts deducted immediately as repayments will have been correctly due where earnings have exceeded the income threshold in the pay period(s) in question. This is because any repayments deducted by the employer have been correctly made based on secondary class 1 earnings in individual pay periods and credited to the borrower account at the Student Loans Company (SLC).

 

These sorts of cases do not fall easily into the general operation of the student loan repayment regime. I hope, however, that this clarifies how things work in these less routine situations."    

I think this raises a number of questions, including whether the deductions will appear on the P45/P60 and if not, why not. Moreover, if the 'employee' has mislaid the individual payslips, whether a certificate or confirmation from the 'employer' of the deductions would suffice for HMRC & the Student Loan Company.

Before I contact HMRC again, I would welcome other questions that may be running through the minds of those who have read this post.

Sam Merchant

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By MarionMorrison
18th Jul 2012 09:55

Fascinating

Explains a lot.  Basically they're saying that the test of whether SLC deductions get made is whether or not Class 1 NI applies, even if this leads to incorrect and over-deduction of SLC payments - if that happens, sort it out yourself in hindsight. 

But it overlooks how most entertainers arrive in a Class-1-NI-but-NT'd state.  This happens as a musician/actor turns up to start the job.  The 'employers' do not communicate with the Revenue - they just treat them as self-employed people for whom they happen to have to charge Class 1 NI.  They are not coded NT by the Revenue but by the theatre - they don't turn up with a P45 or get issued a P46 so the instruction to slap deductions on them never happens although it could if arguments over status or codings did result in a formal NT code being issued.

That reverses the Revenue's chosen position.  This drift into an NT coding means that this leads to under-deduction of SLC payments and we do sort it out in hindsight via the Return.  But at least this way the right amount gets collected without the need for the client to be out of pocket.

Whether this will continue under RTI I can't say - I suspect things will change.  But right now it's in no clients' interests to clarify this.  I think their understanding as explained above is very clear but lacking practical on-the-ground knowledge of how the world works - a familiar state of affairs with the Revenue.

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By sammerchant
18th Jul 2012 10:19

Problems arising?

Thanks to MarionMorrison for the input.

However, I do see problems arising in the future. The notional employer is not required to show a cumulative total of the SLC deductions made, payslip to succeeding payslip. Nor, I believe, will the totals appear on the relevant P45/P60s. The onus therefore is on the self-employed person to maintain a complete record of these deductions in case of query.

The other question that arises is what is the legal position on this? Is HMRC the agent of the SLC and the 'employer' acting at the behest of HMRC? This would matter if the 'employer' failed to pass on the deductions to SLC. Bear in mind that there is no overall check. As the deductions may not feature on the P45s/P60s HMRC will be ignorant of them. 

But the most important point is that if an actor enjoys a stint of some weeks at a reasonable rate, and is then 'resting' for most of the year,he or she will have paid over more than the amounts due. Applying for a refund from the SLC after the end of the tax year will occasion unnecessary hardship. Moreover, from my reading of HMRC's reply, it means that not only will the individual have to submit a Tax Return (which they presumably do already) but also provide evidence of the deductions before any refunds can be made. This evidence will perforce be in the form of copy payslips, so it is imperative that the individual maintains a full record.

Sam Merchant

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Replying to 356B:
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By sammerchant
28th Jul 2012 09:22

Student Loans Deductions - HMRC comments

I have now heard further from HMRC as follows:

 

"Thank you for your further enquiries of 18 July 2012 about student loan deductions.  As I said in my previous reply, I am unable to deal with the specifics of individual cases but I can respond in general terms to the points you have raised.   

 

1.         You raised some concerns that the system discriminates against student loan borrowers such as entertainers and the student loan repaymentrefund process does not operate in a timely way

 

The student loan regime forms part of the Government's package of financial help for students in higher education.  The loans are repaid through deductions from pay only once an employed borrower’s earnings reach a certain level, whatever the occupation of the borrower.  In other words, the general mechanism for repaying the financial aid does not discriminate on grounds of occupation.  Student loan repayments are collected in accordance the Education (Student Loans) (Repayment) Regulations 2009 (the “2009 Regulations”).  Those Regulations provide that repayment deductions are made for a ‘pay period’ irrespective of occupation and are due only wherever earnings exceed the pro-rated income threshold for that period.  This is a safeguard which has been built into the student loan system to protect all student loan borrowers when they need it, as they will make no repayment if their income falls below the threshold or if for example they become unemployed.  It is only after the end of a financial year when the total income position for the year is known that a borrower can apply to the Student Loans Company (SLC) for a refund if the total employment income has been less than the repayment threshold for the year as a whole. 

 

When a refund is being requested because the total income for the year is below the annual repayment threshold, SLC require the P60 showing the student loan deductions  and the annual salary together with any payslips from previous employers before any refund can be made.  SLC aim to process refund requests within 14 days of receiving of all the relevant evidence. 

 

2.         You ask whether employers make deductions on behalf of HMRC or SLC.  

 

HMRC collects repayments of student loans advanced through the Income Contingent Repayment (ICR) Scheme on behalf of the Department for Business Innovation and Skills (BIS).  All new loans advanced since August 1998 are ICR loans and the repayment terms and conditions and legislation are set by BIS.  For borrowers in the UK, repayments are collected through the tax system as set out in the Education (Student Loans)(Repayment)Regulations 2009 (Statutory Instrument 2009/470).  The student loan regulations provide for employers to deduct repayments when instructed to do so by HMRC; to pay student loan amounts deducted to HMRC as part of their monthly payment of PAYE tax, National Insurance Contributions and student loan repayments and to report to HMRC the repayments deducted as part of their annual return of employee deductions (P14 & P35) due by 19 May each year.  HMRC is required to pay student loan receipts to BIS every month and to report repayment information to the Student Loans Company (SLC) when it is received from employers after the end of each financial year.

 

The SLC administers borrower accounts and updates them with repayment information from HMRC.  SLC tells HMRC when to ask employers to start and stop making deductions as they hold the information to determine when student loan repayments are due to be made.

 

The SLC, whose operation is overseen by BIS, deals with ICR loan applications for all students in England.  It is also responsible for paying out UK-wide loans and maintaining borrower accounts until they are fully repaid.  SLC handle any additional repayments that borrowers may wish to make on a voluntary basis, repayments from borrowers who are overseas and direct debit payments from borrowers who choose to opt out of repayment through the tax system as they near full repayment. 

 

3.         You are concerned to know who would bear responsibility for the liability where an employer who is required to deduct repayments fails to remit them as the rules require

 

Employers have clear and specific obligations under Part 4 of the 2009 Regulations.  As with PAYE, HMRC will pursue employers for unpaid student loan deductions. Where an employer deducts student loan amounts but fail to remit them, they can be pursued by HMRC for the sums deducted but not remitted, and in appropriate cases this will include interest and penalties.  SLC does not become involved in any pursuit of arrears; recovery unpaid student loan amounts from employers rests with HMRC.  The customer is entitled to credit for repayments deducted and will not suffer.  

 

4.                   You ask whether the P45 and/or the P60 would indicate the cumulative total of the deductions suffered or whether the burden of evidence would fall to the borrower by needing to retain all of their payslips showing relevant deductions

 

SLC and HMRC encourage student loan borrowers to keep all payslips and forms P60 in order to keep an accurate record of any student loan deductions made.  Student loan deductions are not cumulative, and so unless a borrower has had only one employer and is in that employment at the end of the tax year, borrowers cannot rely on a P60 to give an accurate amount.  Borrowers can and do change jobs and may or may not be in employment at the end of the year.  If a borrower has had more than one job in the year, keeping the form P60 together with all the payslips from previous employers becomes necessary given that a P60 will not show any student loan deductions made by a previous employer, only those made by the employer issuing the P60.  As P45s do not include student loan amounts, borrowers cannot use these to work out the total amount of their student loan repayments.  By keeping all of their payslips can borrowers arrive at an accurate student loan deduction figure.  The attached student loan factsheets stress the importance of keeping payslips and P60s and provide further detail on this.

 

http://www.hmrc.gov.uk/leaflets/csl2.pdf

 

http://www.hmrc.gov.uk/leaflets/csl1.pdf

 

5.                   You have asked about the timing of when loan repayments will be credited to a borrower’s student loan account held by SLC.

 

HMRC passes repayment information to SLC as soon as employer returns, due by 19th May, are received and processed.  This year HMRC had passed 90% of all repayments for 2011/12 to the Student Loans Company by early June.  SLC applies repayments to borrower accounts and, in doing so, interest is calculated as if the repayments were made in 12 equal monthly instalments during the financial year, to match interest as closely as possible to when the deductions were actually made.  This applies equally to all borrowers.  There are no plans to make entertainers an exception to this process.

 

I trust this clarifies the position on the points you have raised." 

I believe that the legislators did not consider the position of taxpayers in those categories where NIC may apply, yet their status is that of the self-employed. But the reply above makes clear that the onus is on the taxpayer to 'provide evidence' of the Student Loan Deductions which would have to be in the form of payslips, as 'Student loan deductions are not cumulative, and so unless a borrower has had only one employer and is in that employment at the end of the tax year, borrowers cannot rely on a P60 to give an accurate amount.' 

Sam Merchant

 

 

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