Be prepared for new Student loan repayment thresholds
Ah uni days, I remember them fondly. It was worth every penny! I rarely think of my student loans (just kidding) but recently the government, not content with increasing the national minimum and living wage, overhauling payslips and increasing auto enrolment contributions have decided that student loan repayments also need a look-in.
Student loans are mostly collected through payroll. A deduction is made from the employees’ pay which is sent to the HMRC and goes towards paying off the loan. The amount of deduction is determined by the employees’ level of earnings.
Currently, the student loan repayment threshold is £18,330 and, if you’re lucky enough to have a salary over this threshold in the current economic climate, then you must repay 9% of any earnings above that figure. This is Plan 1. If you are even luckier and did something like a rocket science degree and are earning over £25,000 then anything you earn over this will also be taxed at 9%. This is called Plan 2.
The new regulations will see the repayment threshold for Plan 1 rise to £18,935 and the repayment threshold for Plan 2 to £25,725. This may not seem like a big change but it means that some people will actually be paying less back each month. Every penny counts when you start to repay your student loans. They’re like big black clouds hanging over your payslip every month and it feels as if they will never go away, so any reprieve is welcome. Not only that but the repayment threshold will change each year based on how average earnings change. So if earnings somehow fall, the threshold could too.
Now what does this have to do with you? You’re not a student anymore. BUT if you’re an employer and your employees need to pay back student loans, then this does affect you and you need to prepare for these changes.
If your payroll process uses manual entry, email or spreadsheets then this can lead to inaccuracies and you may have errors with over or under-deductions. Ensuring compliance and accuracy is super important when it comes to payroll and student loans. What ensures compliance and accuracy whilst reducing the resources needed to manage payroll each month? Technology - in particular, a payroll software called BrightPay that has been preparing for these upcoming changes since they were announced way back when and will do all the calculations automatically for you.
So you don’t have to relive the horrors of being a student i.e. doing maths, and you can leave all the hard work to the professionals. And it’s not just student loans that are changing in 2019, BrightPay will help you with all upcoming payroll changes coming over the next few years. Check out BrightPay at https://www.brightpay.co.uk.
- Customer Update - March 2019
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- Don’t mess with the minimum wagers or HMRC will make you pay
Written by Aoibheann Byrne | BrightPay Payroll Software