Student loan excess repayment in SA tax calc

Balance outstanding at year end less than tax calculation

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Am completing a client's 2022/23 tax return.

She has £900.00 student loan (plan 1) outstanding as at 5/4/23. Her employment earnings were £16633.00, so no deductions via payroll. She is also in receipt of £42500.00 dividends. So, clearly, there is a liability to SL repayments, however the tax calculation (Taxfiler) is calculating this as £3504.00 which is clearly ludicrous given that the amount outstanding is only £900.00.

Is there a get-around?

Thanks.

 

Replies (28)

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By Matrix
04th Jan 2024 19:02

I expect the easiest would be for her to pay off the loan rather than to submit and wait for HMRC and the student loans team to reduce the amount to actual while the tax shows as outstanding. There used to be a box to adjust I thought.

Edit: I think you may be able to adjust on HMRC software. In Taxfiler there doesn’t seem to be an override to the calculated amount, you just choose the plan and enter the amount already deducted by the employer. This all corresponds to the boxes on the SA100.

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By FactChecker
04th Jan 2024 19:07

Not used Taxfiler ... but it sounds as though the calculation is correct in itself (i.e. if you weren't aware of the SL outstanding balance).

This is what I'd expect to happen within Payroll (if all those earnings were being processed through RTI) - which is why anyone who is likely to complete repayments within a tax year is advised to tell HMRC (who will issue a 'stop' notice to the payroll - leaving the individual to resolve any final payment direct with SLC).

Is there a place in Taxfiler where the SLC outstanding balance at start of tax year can be entered? If not, then presumably you'll have to over-ride the calculated figures.

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By More unearned luck
04th Jan 2024 20:02

My understanding is that SLR are/is a tax. This is why it features in the tax return and is assessed and collected by HMRC. If you don't declare or pay it when you should you are subjected to the same penalty regimes as doing these bad things in relation to income tax etc. And of course, you will have to pay the tax that you didn't pay.

But it is different in that you are only liable to start paying it when a mythical so called loan is in 'repayment' and you stop paying paying it when that mythical thing has been 'repaid'. My understanding is that the 'switching on' and 'off' of the liability is done by the SLC. So the tax remains due as the switch-off notice hasn't been given. As Matrix says the client should have arranged to pay the tax by dd about a year ago. It's too late now; the tax should be paid and a rebate obtained from the SLR (in very due course).

If you compare and contrast a SL to a loan from, say, Barclays I think that you will find that the only point of similarity is the word 'loan' in the name. I exaggerate only slightly.

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By More unearned luck
04th Jan 2024 20:11

I think that SLR is a self-assessed tax (between the switch on and off dates) but this quote from page 12 of the tax return guide makes me doubt myself:

"We’ll use the loan and or plan type held by SLC to work out any Student Loan and or Postgraduate Loan repayment."

But this emphasises my point that HMRC go on what the SLC has told them and not on what the taxpayer says.

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By FactChecker
04th Jan 2024 21:09

FWIW I don't think "SLR are/is a tax" (although that opinion is based on trying in the past to 'negotiate' between HMRC and SLC on behalf of mistreated employees) rather than on looking up the legislative foundation.

Operationally, SLC 'own' the debts/repayments .. whilst HMRC are merely the appointed collection agent on their behalf (and only where deductions are taken under payroll PAYE).
So the SL1 and SL2 (start and stop) notices issued by HMRC should only be raised on instruction from SLC.
However until very recently, SLC were still stuck in the HMRC-like world of only managing reconciliations after Y-E (often quite a long time after) ... hence the workaround of requesting a stop notice before the final year of deductions, as otherwise the overpayments would continue for many months (and we all know how easy it is to get a refund)!

So, with regard to your "My understanding is that the 'switching on' and 'off' of the liability is done by the SLC" ... that is true but only in theory (i.e. they have the right but HMRC have the tools).

Not surprisingly this leaves a vacuum when faults occur. A recent example:
- Employee within a Whitehall ministry suddenly started having SL deductions mid-year (despite not having them previously and more importantly despite having a letter from SLC showing the loan as fully repaid nearly 10 years earlier)!
- Payroll insisted they'd received an SL1 from HMRC, which HMRC denied having issued ... but who cares whose grasp of the truth was deficient.
- SLC were happy to confirm (well happy is an exaggeration) that there was no loan to be repaid, but had no process to inform HMRC to issue an SL2 against an account that was already closed.
- I had to threaten litigation (and a leak to the press) just to get HMRC to manually raise an SL2, so that Payroll could cease further deductions within the rules of PAYE.
- But that still left several months of refund due, which Payroll weren't prepared to do without authorisation (not helped by being unhappy at having to re-process several months in order to correct associated calcs which their elderly payroll software is ill-suited to doing).

I could continue, but everything *was* eventually sorted (after several months) ... without any sign of co-ordination between HMRC and SLC, let alone help from either of them.

EDIT: your point about "HMRC go on what the SLC has told them and not on what the taxpayer says" is true, but what SLC tells them is basically just the plan type(s) in operation for an individual (from which HMRC and the employer can calculate the deductions).
When SLC belatedly get around to noticing that an account is fully re-paid is pretty much in the laps of the gods - which is even more exasperating when the individual has more than one plan type loan (as repayment of one loan should often trigger the start of repayments from the other one - potentially based on different thresholds and deduction rates)!

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By More unearned luck
06th Jan 2024 20:28

"FWIW I don't think "SLR are/is a tax""

Ok. Tomorrow I'll list the ways the 'loan' is not like a loan and the ways that the 'repayments' are like a tax* if you list the ways that the 'loan' and 'repayments' are similar to a loan from a bank with repayments made to that bank.

*Although an unusual one in that there is a lifetime limit of how much tax is payable for some 'borrowers', for others the 'loan' is forgiven at a certain point or if they die before that point.

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By FactChecker
06th Jan 2024 23:34

Whilst we are entering the land of angels and pin-heads, I'd say that "the ways that the 'loan' and 'repayments' are similar to a loan from a bank with repayments made to that bank" ... lie in the foundation that the amount borrowed remains liable for repayment until fully repaid along with interest (subject as you say to a couple of terms regarding forgiveness) to the body that provided the original funds.

This amount isn't altered by reference to your earnings (or to any other aspect of your future activities) unlike tax ... although the amount and timing of individual repayments can be driven by reference to earnings (when taken as a deduction under PAYE).

Certainly most people making the repayments regard it as a tax, since they place that attribute on all deductions shown on their payslip (I've heard some even describe pension contributions taken under AE as a tax)!

I'm not sure that your or my opinion on this has any bearing on OP's issue ... but FWIW that's what lay behind my statement on the nature of the deduction.

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By DJKL
08th Jan 2024 11:41

Yes, but some do clear their loans like loans. My son had his fully repaid whilst still in his 20s , effectively 7 years of repayments (combination of high earnings post university and low loan)

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By rmillaree
05th Jan 2024 09:54

whatever the op does hmrc will likely bring the tax due into the tax calc here - this is due to the fact hmrc have a specific sa flag that ensure they revise the return to include the student loan even if its been fully repaid. Its almost certain too late to cancel the flag that will do this .

"Is there a place in Taxfiler where the SLC outstanding balance at start of tax year can be entered? If not, then presumably you'll have to over-ride the calculated figures."

It doesnt work like that - its all or nothing here ref s loan tax when submitting - hmrc will manually amend as apporpriate once return is processed though so all good albeit even if box is not ticked imho s loan tax will be charged for reasons above.

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By bettybobbymeggie
04th Jan 2024 21:04

I'd exclude it completely from the return and wait for the SA302 to appear with (hopefully) the £900 added. Alternatively you could fudge it in TaxFiler by putting the difference between the £900 and the calculated amount as an employer deduction.

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Replying to bettybobbymeggie:
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By More unearned luck
06th Jan 2024 19:54

Did you advise your client of the penalties exigible for deliberately filing an incorrect tax return that under assesses the tax due?

Have you considered your own position? The PCRT?

HMRC don't know how much your client 'owes' the SLC. The SLC only provide HMRC with two things: A notice that the taxpayer should start paying SLR and a notice that they are no longer liable to pay SLR. This is why taxpayers are advised to change to paying by DD in the last year or so of the loan (presumably that period is on the basis that the income level remains more or less the same).

HMRC will open an enquiry into your client's tax return and conclude that the full amount is owed (they can't take notice of what you say is owed) and will then consider penalties. If, as is likely, the omission is judged to be deliberate, the penalties will be higher than otherwise and not capable of suspension.

"For all practical purposes the payment of Student and or Postgraduate Loan repayments through SA, and the consequences of failure to pay, should be treated as if it were income tax."

https://www.gov.uk/hmrc-internal-manuals/collection-of-student-loans-man...

If the SLC did issue a stop notice to HMRC it would be too late as the deadline for doing so is 31 December.

Even if I was wrong about communication between SLC and HMRC you client is still deliberately under assessing the £900 and you are aiding and abetting him in that!

What did you put in the white space? Nothing or a confession?

You are being foolish. And why? - merely to improve the client's cash flow slightly. This is the client's fault for not opting to pay by DD a year ago.

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Replying to More unearned luck:
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By rmillaree
07th Jan 2024 13:06

More unearned luck
"HMRC will open an enquiry into your client's tax return and conclude that the full amount is owed (they can't take notice of what you say is owed) and will then consider penalties. If, as is likely, the omission is judged to be deliberate, the penalties will be higher than otherwise and not capable of suspension."

HMRC may do anything in the absence of full info but when its pointed out that the student loan tax charge is over the top there is formal process to reduce that amount down to only what is needed to clear the loan. I have never known hmrc make a fuss over that situation and they have in my experience always sorted via one simple phone call to agent helpline.

So lets not overegg the tax bill beyond what it needs to be and thats enough to clear down the student loan to nil (added to any other tax due) only.

I would agree with you not ticking the box if student loan is owed is stupid.

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Replying to More unearned luck:
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By bettybobbymeggie
07th Jan 2024 16:47

More unearned luck wrote:

Did you advise your client of the penalties exigible for deliberately filing an incorrect tax return that under assesses the tax due?

Had you been drinking when you typed this out?

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By Software Seeker
05th Jan 2024 06:55

Thanks for the responses, all very helpful.

The suggestions appear to be:-

- pay off the loan and don't enter anything in the Return
- override calculated figures
- pay the 'tax' and obtain a rebate from the SLR
- exclude form the Return and wait for HMRC to repair
- fudge in Taxfiler by adjusting as an employer deduction

Ummm....

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Replying to Software Seeker:
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By Matrix
05th Jan 2024 08:57

The problem with the first option appears to be that, due to the flag, HMRC will probably amend the return for the full amount. If you really want to avoid lots of calls, letters, waiting and having to explain it all to the client, I would ask Taxfiler if there is a workaround or use HMRC software.

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By JB101
05th Jan 2024 09:06

The client will need to contact SLC for advice and then may need to contact HMRC (nearly impossible now!)
I have had a couple of cases of this "overpayment". HMRC advise to "correctly" calculate the SL repayment for the tax return ie show the full amount calculated as due - and file this tax return. Then, when SLC & HMRC are contacted, HMRC will effectively adjust for the SL contributions not actually due.
Another good reason to prepare and file tax rteurns early as it is difficult to sort out quickly and by just not paying the SL parts, interest and penalties may appear on the taxpayer account, although they might be cancelled later.

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By rmillaree
05th Jan 2024 09:38

this thread reads very messy

2 simple options here

you can simply submit sa return - once processed contact sa helpline and advise that s loan deduction is excessive and request they limit amount in tax calc to sum needed to clear off student loan - shouldnt take too long to sort normally albeit nowt is easy january. hmrc tax calcs will get adjusted back to include amount that only repays loan.

In theory client can simply pay off student loan and then you dont tick box on tax return - note this route will also involve contacting hmrc to get the student loan tax deduction removed as hmrc will revise the return to bring the full student loan amount in anyway even if you dont tick the box - so this route doesnt really save any hassle from youm point of view - other than you no the s loan amount wil end up back at nil eventually.

As both routes involve contacing sa helpline i prefer for option 1 as it saves teh client the hassle of having to off the student loan.

Note with regard to estimate of amount needed to clear dont forget there may be added interest from date of last statement.

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By rmillaree
05th Jan 2024 09:38

this thread reads very messy

2 simple options here

you can simply submit sa return - once processed contact sa helpline and advise that s loan deduction is excessive and request they limit amount in tax calc to sum needed to clear off student loan - shouldnt take too long to sort normally albeit nowt is easy january. hmrc tax calcs will get adjusted back to include amount that only repays loan.

In theory client can simply pay off student loan and then you dont tick box on tax return - note this route will also involve contacting hmrc to get the student loan tax deduction removed as hmrc will revise the return to bring the full student loan amount in anyway even if you dont tick the box - so this route doesnt really save any hassle from youm point of view - other than you no the s loan amount wil end up back at nil eventually.

As both routes involve contacing sa helpline i prefer for option 1 as it saves teh client the hassle of having to off the student loan.

Note with regard to estimate of amount needed to clear dont forget there may be added interest from date of last statement.

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By fawltybasil2575
07th Jan 2024 14:25

@ SoftwareSeeker (OP).

The ONLY actions required now are:-

(1) An entry in the appropriate white space on the SATR:-

“Whilst the figure in Box 1 on page TC1 is xx/xx/xxxx, the CORRECT amount payable to HMRC on or before 31 January 2024 is £2,604.00 LESS THAN that figure (ie £ , that figure including the £900.00 current balance on the Student Loan Account); and therefore payment will be made of £ on or before 31 January 2024”.

(2) A letter to HMRC to include:-

“The payment made to HMRC on xx/xx/xxxx includes £900.00 re a Student Loan Repayment to FULLY clear the Student Loan Account (attached hereto is a copy of the current Student Loan Account statement)”.

[If payment is made by cheque then of course the above words per (2) (excluding of course the words “made to HMRC on xx/xx/xxxx”) should be used in that letter].

The Student Loan Repayment is NOT INCOME TAX.

If the client receives a demand for £2,604.00 then a strongly worded letter to HMRC is essential, pointing out the wording on (i) the SATR and (ii) the letter.

Basil.

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By Tax Dragon
07th Jan 2024 14:28

Sorry for the edits. I miscalculated.

TCSN section 21 does not provide a way of capping the repayment.

CSL1 talks about interest and late payment penalties, so, even if these have not been charged on other occasions, it remains a possibility that they may be and I agree with Mul that it is correct to alert a client in this situation to that possibility. (They should choose what to do; not you.)

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By fawltybasil2575
07th Jan 2024 15:20

No interest or penalties can be VALIDLY imposed if the OP takes the action advised in my last post.

In some respects, the key lies in the fact that circumstances may change between 6 April 2023 and the 31 January 2024 (indeed theoretically the balance on the OP’s client’s SLA at 5 April 2023 could have been HIGHER at that date than the SLA Repayment element of the TC1 figure) – hence, any repayments of the SL between 6 April 2023 and 31 January 2024 are effectively no different from any payments made by the client to HMRC re 2022/23 between 6 April 2023 and 31 January 2024. In Utopia, of course, if the SLC liaised fully with HMRC, such that the SL Repayments element of the 2022/23 Tax Calculation were to be capped at the SLA balance at 5 April 2023, one would not encounter the situation which the OP queries.

At the risk of any apparent sanctimony, I have (if memory serves) encountered this situation before, and HMRC accepted my interpretation of the correct legal position.

On a point of principle, one should NOT cave into any HMRC misinterpretation of the law in this area – as long as one forewarns the client (which one does in practice on countless occasions) that HMRC may “foul up”, by issuing demands and/or attempting to impose interest or penalties, then one should take the approach espoused in my last post. If the client wishes to overpay (by effectively paying SLC too much) , then he becomes at risk of struggling to obtain the repayment to which he is legally entitled.

Basil.

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Replying to fawltybasil2575:
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By FactChecker
07th Jan 2024 16:20

One of the practical difficulties (if you don't avoid all this hassle by opting to move to direct repayment via DD in the final year of the loan) is that it's hard to ascertain from SLC (and impossible to extract from HMRC) how much has yet to be paid in order to rest at a zero balance.

Interest is accruing on a daily basis, so unless the taxpayer can supply SLC with the future date of intended final payment AND extract from them the sum required to achieve a nil balance as at that date ... then "the £900.00 current balance on the Student Loan Account" is actually a moving target that may never receive a bullseye!

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By Tax Dragon
07th Jan 2024 17:08

But, if you do somehow hit target (or somewhere in front of target - ie overpay) then I'm not arguing with Basil's assertions. The context of the reference to interest and penalties I cited was where the shot landed behind target.

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By rmillaree
07th Jan 2024 17:23

the issue is easily sorted if the tax is dealt with via sa as the relevant calc is done to fully settle when hmrc/slc adjust as apororpaiute behind the scenes . I would agre the final bill will possibly be more than o/s balance at previous statement date.

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By leeanthonyblackshaw
07th Jan 2024 17:43

The last time I needed to look at this for a client, the process at SAM11130 worked
ok (before the current HMRC long delays and routine incompetence on matters generally, of course).

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By Software Seeker
08th Jan 2024 09:23

Thanks for the further responses.

I am going to talk to the client and seek her instructions to approach the matter as described by Basil and to refer to SAM11130 as used in the past by leeanthonyblackshaw.

This way, the client has :-

- adhered to her legal duties of completing the Tax Return correctly; and
- followed HMRC published guidance as to what to do in these circumstances.

Clearly the client will be fully briefed on what/why this course of action is being suggested.

Thanks for all the replies.

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By Retrocanary
08th Jan 2024 10:08

I may be in this position myself in the next year. I plan to pay off the remainder in advance of submitting 2024/25 and giving SLC and HMRC time to communicate with each other before doing so.

Of course, I'm not expecting this to happen properly, and will no doubt have to argue with both organisations as each tell me its the other's job to sort out.

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By Ben Alligin
08th Jan 2024 10:12

Get client to ring the SLC and pay off the loan. Then file their return using HMRC software (it is surprisingly good) and simply tick the box stating no student loan. HMRC system will query the entry, and you just write in the box, Student Loan was paid off on 08/01/2024. Job done.

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