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HMRC apologises over student loan repayment error

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A miscalculation of student loan repayments has led HMRC to apologise for overpayments affecting around 16,000 taxpayers.

29th Sep 2023
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HMRC has apologised for an error in the calculation of student loan repayments leading to over-repayments of the outstanding student loan for around 16,000 taxpayers.

The mistake occurs where payrolled benefits in kind (BIKs) that are not subject to Class 1 national insurance contributions (NICs) are incorrectly included in the PAYE income declared on the taxpayer’s self assessment return.

“Earnings” on which student loan repayments are based include any BIKs on which Class 1 NICs are payable, such as meal vouchers, but not those that are subject to Class 1A, for example, company cars. So if an employee is provided with a Tesla Model 3 and also £5 of luncheon vouchers, only the luncheon vouchers should be included when calculating earnings for the purpose of the student loan repayment amount. 

Most BIKs reported on an employee’s P11D are subject to Class 1A and not Class 1 NICs so should not be included in the earnings figure. Payroll software should automatically ignore benefits not subject to Class 1 NICs when calculating earnings to generate the student loan deduction. However, because the self assessment system is unable to distinguish payrolled BIKs from the total PAYE income amount, those not subject to Class 1 NICs have been incorrectly included in the calculation, resulting in the student loan repayment being too high.

Who is affected?

The error dates back to 6 April 2016 when the payrolling of BIKs was introduced on a voluntary basis. HMRC estimates that around 16,000 taxpayers have been affected, with the average over-repayment of the student loan estimated at £104 in total for all affected years.

According to HMRC’s Agent Update 112, this error only impacts taxpayers who are:

  • repaying a student loan and
  • receiving payrolled BIKs that are not subject to Class 1 NICs though their employer and
  • in self assessment.

Those taxpayers now have a choice between receiving a refund or leaving the overpayment – which has already been sent to the student loans company – offset against their loan, reducing the balance and any interest that may be due. HMRC has written to all affected student loan borrowers to apologise for the error and explain their options and what steps they need to take.

Temporary fix

The tax authority is working to fix the error and allow the relevant BIKs to be entered separately from total PAYE income on the self assessment return. However in the meantime additional steps are required when completing the return on behalf of a taxpayer with a student or postgraduate loan balance outstanding, to ensure the correct repayment amount is charged.

For returns completed online these steps are as follows.

  1. Deduct relevant payrolled BIKs from total PAYE income as shown on the P45 or P60.
  2. In the “Fill in your return” section (section 4) enter the figure from step 1 into the “pay from employer” (box employment 03).
  3. Select “yes” when asked if taxable benefits were received from the employer.
  4. In the next section, enter the relevant payrolled BIKs figure in the “other benefits” box (box employment 20). 
  5. Enter the following note in the “additional information” box: “I have entered my payrolled benefits in kind in the ‘other benefits’ section as I’m a student loan borrower.”

Additional information and advice has been published at gov.uk, and agents can contact the Agent Dedicated Line on 0300 200 3311 for further support.

An HMRC spokesperson said: “We’re writing to customers whose self assessment tax returns have been affected, apologising and explaining what they need to do. We’ve introduced a temporary solution and aim to have a permanent fix for the 2024/25 tax year.”

Student loans overhaul

This comes at a turbulent time for student loans as the new “Plan 5” student loans are introduced for students starting an undergraduate course this month. 

Students who take out a loan on or after 1 August 2023 will start repaying that loan when their income before tax and other deductions reaches the new threshold of £25,000 (compared to £27,295 for Plan 2 student loans). The period after which any outstanding loan balance will be written off is increased from 30 years to 40 years, while interest will be applied at the retail price index (RPI) only (for Plan 2 loans it is RPI plus up to 3%).

These changes are estimated to increase the percentage of graduates who pay their loans off in full from 23% to 52% according to the Department of Education, resulting in substantial savings for the treasury. Borrowers under Plan 5 are not due to come into repayment until April 2026 as repayment begins in the April after the borrower leaves university.

The Labour party has hinted at plans to overhaul these changes if elected to power, although promises by the opposition party to abolish university fees entirely have been dropped.

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All Paul Accountants in Leeds
By paulinleeds
02nd Oct 2023 12:35

When reading this article, under the temporary fix section, I was convinced that reference to box 3 and box 20, in the employment section, was completely wrong. This is because I was looking at a (normal PDFed or paper) Tax Return. You are then looking at box 1 and box 15.

I see if you follow the link that is in the article, to the HMRC website, it says something more helpful.

If you complete a paper return:
Deduct your payrolled benefits in kind from your total PAYE income as shown on your P45 or P60 (your employer can provide the figures if you are unsure).

Go to the employment page and enter this figure in the ‘pay from this employment’ box (box 1).

Enter the benefits in kind figure into the ‘other benefits’ box (box 15) on the ‘employment’ page.

On the SA100 form, enter the following note on page TR7 into the ‘any other information’ box (box 19) — ‘Figure entered in box 15 relates to my payrolled benefits in kind as I am a student loan borrower.’

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By richard thomas
02nd Oct 2023 16:12

Thank you Amy, for bringing this aspect of Agent Update (AU) 112 to our attention. In my Hugo-type comments on Update 112 I did not go into detail about this latest HMRC ****-up other than to note it.

As a result of your article I have had a closer look at the item in AU 112 and (in my view more importantly) to the link it provides. That is more important because it is intended for the taxpayer primarily, and because the AU (and your article) reproduces much of it for the attention of agents.

My view of the gov.uk page (https://www.gov.uk/guidance/tell-hmrc-about-a-student-loan-in-your-tax-r...) is that as a document intended to help taxpayers with a student or postgraduate loan to complete their returns it fails because of its wholesale adoption of what a linguist-hero of mine calls “nerdview”. This is the assumption that when you use a word or phrase which is the jargon of a particular closed group and does not necessarily mean what its constituent parts suggest to ordinary people not in the group, or uses acronyms and abbreviations to similar effect, your reader will nevertheless know what you mean.

It further does not assist the more clued-up reader, ie readers of AU 112 and AWeb, who may know what it means, if it uses the wrong jargon terms, acronyms etc for the subject matter or uses a complex and difficult reference when a much simpler one is available.

The only part the gov.uk page we need to consider from the point of view of an ordinary taxpayer (like my daughter who had a student loan and made a tax return but knows nothing about tax except she thinks she pays too much) is the part starting, and indeed consisting of:

“If you have payrolled benefits in kind”

I think most employees would know what benefits in kind are, if only use of a company car. Many would know what a payroll is, but would be more familiar with a payslip. All would know that their employer deducts PAYE tax from their pay and probably Class 1 NICs on their pay. But what does the average employee understand by “payrolled benefits”? They may know that they get benefits and they may get a P11D with figures to put on their return, and they may think that is something to do with the payroll.

To use “payroll” as a verb is jargon, nerdview, and the phrase should be explained and a contrast drawn with the P11D case. I suggest it should say that the section of the webpage below the heading applies if PAYE has been applied by your employer to any car benefits and some others that you get, and here it should mention that your employer will have told you if this has happened and if you at not sure ask them.

“Student and postgraduate loan deductions are not due on payrolled benefits in kind that are not subject to Class 1 National Insurance contributions.”

Really? If you say so. But hands up how many people reading this can tell what benefits are or are not subject to Class 1 NICs? And how many ordinary employees do you think can tell you?

I think I’m reasonably au fait with the legislation in the employment area and with student loan regulations as my daughter has just finished paying hers (the last year is a right palaver) but my initial reaction was that I had no idea that there was a definition of income for SLR purposes that referred to the exception rules for Class 1 NICs. And I was right to have no idea, because there isn’t one.

The Student Loan Repayments (SLR) Regulations’ definition of “total income”, the concept to which the relevant percentage applies, takes the income tax one and makes it subject to exclusions. One is for:

“amounts chargeable to tax under Chapters 5, 6, 7 or 10 of Part 3 of the 2003 Act (benefits in kind)”

The 2003 Act is ITEPA, not the Social Security Contributions and Benefits Act which establishes the meaning of Class 1 NICs.

The relevant Chapters of Part 3 ITEPA are the provision of accommodation, motor vehicles, cheap loans and other miscellaneous benefits (use of chattels etc). Of those only the benefit from motor vehicles and other miscellaneous benefits can be “payrolled”

Wouldn’t it be easier to refer to these two categories? It certainly would, to answer my own question as anyone who has tried to find out what is excluded from Class 1 would testify, if they were still conscious and not stupefied by the lower reaches of Parts 1 to 10 of Schedule 3 to the Social Security (Contributions) Regulations 2001, with its dreadful restarting of paragraph numbering in each part of the Schedule. Paragraph 1 Part 2 is a good starting point for the legislation nerd:

“Certain payments in kind to be disregarded

A payment in kind, or by way of the provision of services, board and lodging or other facilities is to be disregarded in the calculation of earnings.

This is subject to the paragraph 2 and also to any provision about a payment in kind of a particular description or in particular circumstances in any other Part of this Schedule.”

So it’s not just payments in kind by payments by way of services etc… Does it matter which it is for Student Loan Repayments and the webpage? If you want more fun, try to work out if the provision of various different kinds of voucher or the quaintly named “credit-token” is within Class 1 NICs or not.

It’s just ludicrous to tell the average reader that the ones the problem relates to is confined to payrolled benefits excluded from Class 1 NICs. It’s fairly recondite to tell agents that, when a far simpler explanation is possible. There are of course payrolled benefits that are subject to Class 1 NICs but are not excluded from SLR and that may well confuse.

“Currently, our Self Assessment system is not able to tell the difference between these payrolled benefits in kind and the rest of the PAYE income.”

I think “”the PAYE” should be “your PAYE” but that is minor. PAYE income is not defined and seems to be a jargon term for gross pay on which PAYE is operated (but see what I say about the example). Experts will know that it’s an unfortunate term to use, as ITEPA and the PAYE Regulations define that term to mean all employment income, all pension income and all benefit income, whether PAYE is deducted from it or not. It includes benefits in kind that are not payrolled as well as those that are.

But it’s not a totally useless term for the average employee, so long as a P45 or P60 does have an entry for “total PAYE income” (see Item 1 of the instructions for completing your tax return if you have these mysterious non-Class 1 payrolled benefits on which it is stated:

“your employer can provide the figures if you are unsure”).

Well your employer is required by regulation 61M of the PAYE Regulations to give you the figures of payrolled benefits divided between categories by 1 June after the year end. And if they do, how would you (or they) know which of the categories is excluded from SLR total income – this does not tell you. If they haven’t, dob them in to HMRC who will of course not know that a penalty can be charged under s 98 TMA on the employer.

On a small typo, I know many employees think they don’t get enough “from” their employer but few actually get income “for” their employer – item 2 (online return).

As to item 4 (paper return), if anyone read box 19 (White Space) and saw “Box 15” mentioned, the first thing they might do is ask “which Box 15?” It’s not in the SA100 on page TR7 is it? Well actually there is a box 15 on TR7: “Your tax adviser’s name?”

Now look at the example. The instructions above it start by asking you to take your “total PAYE income” and deduct the payrolled benefits. The example has someone with a total amount on their P60 of £50,000 of which £10,000 is a payrolled benefit. So the starting point, £50,000, would, you might think, be what item 1 in the instructions calls “total PAYE income”. But no, its just “total income”. Your “PAYE income” is stated instead to be the £40,000, ie after deducting payrolled benefits.

Is this a very subtle point being made by HMRC? And perhaps the £40k is called just “PAYE income” because that’s the term on the SA 102 Employment pages. But it isn’t – PAYE income is not mentioned on those pages and these concepts have been invented for this specific workaround! So no, it’s not subtlety.

After that, let’s get back to AU 112 and

“How this happened”

When we work out student loan repayments, one of the figures we use is the total PAYE income declared on the Self Assessment tax return.”
We’ve seen there is no such thing as “total PAYE income” declared on the tax return.

And from there to the article.

“‘Earnings’ on which student loan repayments are based include any BIKs on which Class 1 NICs are payable, such as meal vouchers, but not those that are subject to Class 1A, for example, company cars.”

I wouldn’t myself invent the term “earnings” for what SLRs are calculated on. A less confusing term is (adjusted) total income. It is more than earnings as any self-employed person like my daughter would know. Certainly payments and deemed payments of earnings and things treated as earnings (both with the meaning they have in ITEPA) are what PAYE is operated on, but SLR goes wider than that.

I love the idea of benefits provided being a Tesla and a luncheon voucher. I haven’t seen one of the latter since my university vacations when I had a job in the City between terms. And I didn’t even get the use of a Morris Minor.

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