Student loans: It’s getting complicated

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Since the introduction of student loan recovery through the payroll in 2002, this has been a mercifully straightforward part of payroll processing. But just at the time everything seems to be changing in the world of payroll operations, student loan deductions also get a makeover.

Actually, the change is part of the bigger picture of the impact that devolution is having on payroll processing. You’ll see that this year in the operation of the Scottish rate of income tax, the plans for next year’s apprenticeship levy and just about every employment law change that now comes into force at different times in different parts of the United Kingdom!

From September 2012 onwards, students living in England and Wales before they went to university have been required to pay fees for their degree of up to £9,000 per year. This change did not affect students from Northern Ireland and Scotland. Those 2012 students are now coming into the workplace, having for the most part graduated in the summer of 2015.

The agreement with the 2012 (and onwards) cohort, who are known as plan two students, was that they wouldn’t start repaying their student loans until their NI’able earnings exceeded £21,000 per year, and in any case not until the start of the tax year after the year in which they graduated, as has always been the case with student loan deductions.

All students who took out loans pre-September 2012 and any students from Northern Ireland and Scotland (whenever they took out their loans) are known as plan one students.

To date we haven’t been able to operate student loan deductions for plan two students as there was only one threshold maintained within payroll software. That all changes from April 2016. The threshold for plan one students will rise to £17,495 a year, and for plan two students will be £21,000 a year (frozen now for the next five years at that figure).

As there are now two types of ex-student, the starter checklist has to be amended to accommodate this. As I write there is still no sign of the amended starter checklist on .gov, although many of us were given an advance copy of it some weeks ago by HMRC’s software developers’ support team.

The amended starter checklist asks the ex-student a number of questions in order to determine:

  a) Should they be in student loan deductions at all through the payroll, and;

  b) Whether plan one or plan two should be in operation.

The wording is as follows:

  1. Do you have a student loan which is not fully repaid? Yes/No
  2. Are you repaying your student loan direct to the Student Loan Company by agreed monthly payments? Yes/No 
  3. Student Loan Plans

You will have a plan one student loan if:

  • You lived in Scotland or Northern Ireland when you started your course, or;
  • You lived in England or Wales and started your course before 1 Sept 2012. 

What type of Student Loan do you have? Plan one or plan two?

    4. Did you finish your studies before the last 6 April? Yes/No  

NB: The numbers do not appear on the form, they are just for the purposes of this article as they bear some explanation…

Rather than being asked as question four, the first question should be: ‘Have you finished your studies?’

  • Repayments do not begin until the beginning of the tax year after graduation, so this may preclude the rest of the questions being answered.

Question two should explain the difference between direct debit payments and voluntary payments:

- Those in direct debit should not complete the form. Direct debit between the ex-student and the student loan company can be initiated for various reasons:

  • The ex-student might have been overseas.
  • The ex-student might be in the last 23 months of the loan payment period.
  • The ex-student might be a plan two student who has already graduated having done a short course or dropped out of university, and cannot repay through the payroll until April 2016.

- Those ex-students who have made a voluntary payment to the Student Loan Company still complete the payroll deduction section if they still have a loan outstanding and graduated before the start of the current tax year.

It may of course be the case that the ex-student does not complete the starter checklist at all, but you have a P45 from their previous employer that indicates that a student loan is due to be repaid. Said P45 will not indicate plan one or plan two, it will still only show a Y in the student loan box as has always been the case.

In the absence of information indicating the student loan type, the employer is required to operate plan one. As the threshold for plan one is considerably lower than the threshold for plan two, this may mean the student has had a student loan deduction when one is not due, or it may be too high. In either case it appears that employers may well be required to refund the over deduction. We are told that guidance on this will not be provided until the last week of March, only a matter of days before the start of the tax year.

Once a student loan deduction begins to be operated, the value will be included in the full payment submission. This will prompt HMRC to issue an SL1 start notice to the agent/employer. These SL1 notices should now be checked back to the plan that is in operation to confirm that the correct one is in use, as the SL1 now acts both as a start notice and a ‘confirmation to change the plan’ notice.

Employers will not be asked to deduct both plan one and two simultaneously. However, we should not heave a sigh of relief that this is the only change on the horizon. From September 2016 the Student Loan Company will start to offer loans for masters’ degrees – these will be known as plans three and four. Following hot on the heels of plans three and four will be plans five and six for part-time degrees and second degrees in STEM subjects. These will deduct simultaneously with undergraduate plan one and two loans... 

Kate Upcraft
Owner
Kate Upcraft Consultancy Ltd
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26th Feb 2016 16:56

waste of time

Employees generally do not tick this box at present. Most do not even fill in boxes a, b or c on a P46.

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By NYB
29th Feb 2016 14:54

Revised Starter Check List

Oh well this will double the size of the Starter Check List. Shouldn't think half will understand/be bothered to fill it in correctly so more faffing around and chasing. Most of my clients employees have difficulty in filling in their name correctly!

Half my clients are still using a P46 which has been obsolete for a year or more let alone a REVISED Starter Check List

P45 is useless now as half the time their is missing info on it as no address.

Yet more thrust on payroll. It's fiddly bits like this that take time.

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avatar
By NYB
29th Feb 2016 14:56

Revised Starter Check List

Oh well this will double the size of the Starter Check List. Shouldn't think half will understand/be bothered to fill it in correctly so more faffing around and chasing. Most of my clients employees have difficulty in filling in their name correctly!

Half my clients are still using a P46 which has been obsolete for a year or more let alone a REVISED Starter Check List

P45 is useless now as half the time their is missing info on it as no address.

Yet more thrust on payroll. It's fiddly bits like this that take time.

Thanks (0)
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10th Mar 2016 11:35

If anyone can find a PDF format for the revised starter checklist it would make my life easier as I cannot seems to be able to find it at the moment.

Any luck anyone?

Thanks (1)
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By NYB
10th Mar 2016 12:35

Found Starter Check List
It's on the web if you Google Starter Checklist 2016. Absolutely hopeless as it HAS TO BE FILLED IN ONLINE. You can't save it but once finished it can be printed. You have to fill in a dummy to get through the pages to see what is needed. Unlike the old Starter Checklist you can't print out a blank and have them to hand as the Student Loan part has " either or" questions which trigger a different drop down bit. I have a wine bar client who uses local uni students. Relatively frequent turnover of staff. She has said to me " What you mean is I have to fill it in with them, on line on my laptop, print it off and send. Yes. sAid I. She now has to get a printer in the workspace to do this. I have told her to ask the Stucdent Loan question first and if they haven't got one use the old form. It really is another hassle.

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10th Mar 2016 14:07

Thank you NYB

That would explain why I was unable to find the PDF format then!!

Clients are just getting the grip with using the starter checklist, now we need to point them towards the online form which, if I remember correctly, printing the form once completed was always a nightmare!!

Time will tell...once again!

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