Senior Policy Liaison Officer Chartered Institute of Payroll Professionals
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New student loan repayment threshold

by
28th Aug 2015
Senior Policy Liaison Officer Chartered Institute of Payroll Professionals
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Share this content

Support for education and student finance is high on the government’s agenda and as such there are continual changes undergoing review or consultation:

  • The cap on student numbers was removed this year so there is now no limit on the number of undergraduate students Universities in England can admit.
  • Student loans will be replacing maintenance grants for new full-time students in England.  From 1 September 2016 the student finance package will include a Tuition Fee Loan and a Maintenance Loan only.
  • In 2016-17 new Income Contingent Repayment (ICR) loans of up to £10,000 will be available for those under 30 wishing to undertake a postgraduate taught masters in any subject.
  • Currently under consultation is the proposal to extend support to postgraduate research students and to offer loans in addition to grant funding.

And to add further complexity for employers and payroll professionals in particular is the introduction of a new student loan repayment threshold from April 2016 – an area worth looking at in a bit more detail.

Plan 1 and Plan 2

The existing student loan repayment threshold (annual £17,335) is known as repayment ‘Plan 1’ and refers to students who began their course prior to 1 September 2012. In addition to this threshold a new threshold of £21,000 will be introduced to handle the collection of the new Higher Education loans (England and Wales only) and accommodate 24+ Advanced Learning loans (England only). This will be known as repayment ‘Plan 2’ and as with current ICR loans, individuals will repay 9% of anything earned over the new annual threshold. Employees repaying under the existing Plan 1 threshold will be unaffected by the introduction of Plan 2.

Plan 1 and Plan 2 will not be repaid concurrently and employers will never be asked to operate more than one plan type at a time.  In some cases a plan type could change in year and under these circumstances no stop notice will be issued to the employer. A Plan 2 SL1 (student loan start notice) will be issued which will indicate which type of plan should be operated and will also mean there is no interruption to loan repayments. The Plan 1 loan will in effect stop as soon as the Plan 2 SL1 is applied to payroll and the employee’s earnings exceed the relevant threshold.

If for whatever reason the employee has not been able to establish the plan type then Plan 1 should be operated until confirmation is received from the employee or HMRC; Plan 1 will always be the default plan. The Starter Checklist and the SL1 will continue to be means of notifying student loan borrower status and loan plan type. The Starter Checklist will be amended for April 2016 so employers will be prompted to ask which type of plan their employee is on. Form P45 will only indicate whether an employee is already repaying a student loan, it will not indicate a plan type.

When updating employee information onto payroll software, employers will have to input which plan type applies. HMRC has been working with software developers so from 6 April 2016 all software recognised by HMRC will calculate student loan deductions based on either a Plan 1 or Plan 2 threshold. As now, payroll software will deal with student loan calculations at the same time as it calculates tax and National Insurance Contributions.

There will be no change to current real time information reporting requirements as the plan type is not reported, only the amount of deduction. The first SL1 notifications for Plan 2 will be issued in March 2016 for repayments starting from 6 April 2016. HMRC are currently working on employer guidance which will be made available later in the year.

Freezing the student loan repayment threshold

The government also announced in the Summer Budget that they would be consulting on a proposal to keep the student loan repayment threshold at the same level for five years. They have put forward two options:

Option one

This is the government’s preferred option and it is to freeze the threshold for all Plan 2 loans, existing and new. The first borrowers with Plan 2 loans start to repay under statutory terms in April 2016, when the threshold will be £21,000. Under this proposal the threshold will remain at this level for five years, for all English borrowers – new and existing. The threshold will be reviewed from April 2021. This option will reduce government debt the most whilst still ensuring those who do not earn high wages are protected. This is the option that makes the largest savings. It will still ensure that higher education is free at the point of use, and that repayments are affordable for all graduates.

Option two

The second option is to freeze the threshold for new borrowers only. This will mean that only borrowers starting courses in academic year 2016-17 and subsequent years will be affected. These borrowers will generally expect to start repayment in April 2020. The threshold will be frozen from April 2020 for five years at the same level that the existing post-2012 borrowers’ loan threshold has reached by then. This option reduces government debt, but considerably less than option one. It constitutes a new student loan plan, and therefore has operational demands and administrative costs associated with it.

Diana Bruce is senior policy liaison officer at the CIPP. The CIPP has a survey running to inform its consultation response. If you have an interest and would like to provide your views, their survey is open until 3 September.

Replies (7)

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By JCresswellTax
28th Aug 2015 12:41

More hassle

For Self-Assessment Tax Returns!

Oh that's right not for much longer as the government are doing away with them...phew!

Aye right!

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rebecca cave
By Rebecca Cave
28th Aug 2015 14:02

Plan 1 threshold

Will the plan 1 threshold increase above £17,335 for 2016/17?

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By neiltonks
01st Sep 2015 13:59

Threshold

The plan 1 threshold will be £17495 for 2016/17.

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Replying to whitevanman:
rebecca cave
By Rebecca Cave
01st Sep 2015 14:12

Where was that announced?

I'm sure you are right Neil , but I haven't been able to find the source of that number - where did you find it?

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By neiltonks
01st Sep 2015 15:04

Student loan company

I don't know when it was announced either.  I found it on the Student Loan Company's repayments website:

http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,6678511&_da...

 

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By Ben Alligin
02nd Sep 2015 12:35

What a joke

So how will accountants know which plan type or threshold self-employed individuals are on when completing their self-assessment forms? HMRC will no doubt claim that they will inform us.

Well my record to date is HMRC systems still advising me that a student loan is still due on a client 4 years after they paid their entire loan off. Both the student loan company and the HMRC Student Loan liaison section agree that there is no outstanding loan.  Every year I write the same information in the white space as to why we are not paying anything towards student loans with a cross reference to the original call time, date and contact number of the folks at HMRC that confirmed all this, but still HMRC on-line software insist that there is an outstanding liability. So the idea that their software will be correct in letting us know Plan 1 or Plan 2 is pie in the sky.

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By Tim Robinson
02nd Sep 2015 12:42

It's getting silly

At what point should paryoll operators say 'this is getting too complicated'?  What will be the straw that breaks the camel's back?

The small-business person's moan that they are unpaid tax collectors is becoming more and more true.  Can someone remind the government that they are committed to reducing red tape!

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