Tricky student loan repayment questions

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Claire Thackaberry’s article How student loan repayments work in practice prompted a number of interesting queries, which she addresses here.

Fluctuating earnings

If a borrower has fluctuating PAYE earnings, is the student loan deduction calculated cumulatively month-on-month within one tax year? Say pay for month 1 is over the monthly repayment threshold and the pay for month 2 is under the monthly threshold, will there be an automatic adjustment in month 2 or a wrap-up adjustment made at the end of the tax year?

Answer:

Student loan repayments are not calculated cumulatively, but on a pay-period basis in a similar way to National Insurance contributions. This is explained in the Tax Guide for Students in an example for a Plan 2 loan.

There is no automatic adjustment for over/underpayments in subsequent months or at the tax year-end under the PAYE mechanism. However, if the taxpayer is not in self assessment and has earned under the student loan repayment threshold over the tax year, they can apply to the SLC for a repayment of the student loan deductions overpaid. See this example on the Tax Guide for Students website.

Payments on account

My son has been asked for repayment of student loans through the tax payments on account statement for several years. He was even charged interest for non-payment this year even though he included enough in his payment on account to repay the loan completely.

Answer:

Student loans are not included in self assessment payments on account. They should only be included in the balancing payment paid in January after the tax year end.

The interest on the student loan is charged on the outstanding loan balance until the balancing payment is due. Making the payment to the SLC earlier in the tax year, for example, using a Budget Payment Plan for self assessment, will not reduce the interest charged on the student loan. This is explained in more detail on the Tax Guide for Students website.

Why doesn’t HMRC stop collection?

Is HMRC advised by SLC of the outstanding balances on student loans? It appears that HMRC simply assumed that the taxpayer should be paying the same this year as the previous year ie more than the outstanding loan.

Answer:

HMRC is advised by the Student Loan Company of the outstanding balances on taxpayer’s loans but this will be after the self assessment filing deadline for the tax year. There is an option to pay the SLC directly when the taxpayer is coming towards the end of repaying their student loan. This option is usually provided two years before the expected repayment date of the entire loan. This should stop any overpayments being made.

 

For more on the work done by the Low Incomes Tax Reform Group visit their website.

About Claire Thackaberry

Claire Thackaberry

Technical Officer for LITRG and Chartered Tax Adviser in practice

Particular areas of interest include:

  • Students/Tax Guide for Students
  • Tax education in schools
  • Self-employment (includes cross-over with UC and making tax digital)
  • Apprentices (low income workers)
  • Wales (devolved administrations)

Replies

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13th May 2019 11:46

HMRC do not take any notice of SLC or even tax returns.

Many of my clients have paid their student loans off over the last 6 years, this was duly reported to HMRC via their tax returns.

My record to date, completing a self assessment for 2018/19 and HMRC's software is still saying there is a Student Loan Plan 1 in place. However the loan was paid off 5 years ago and HMRC was notified of this fact, even including a reference and a copy of the final payment to SLC with a letter confirming no outstanding loan!!!

Thanks (1)
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to Ben Alligin
17th May 2019 11:41

If is one reason I am funding my children without loans (although that is a very expensive choice but saves the tax payer a small fortune given most students never repay the loans in full and the tax payer in effect pays).

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13th May 2019 12:28

Thank you for the worked example at the first link.

Can you please confirm the observation at the end of that page:

"If Patrick was in the Self Assessment system, he might, however, obtain a refund when his final loan deductions are worked out according to the total income on his tax return."

I cannot see that an apparent overpayment here is one of the circumstances recognised in Regulation 20 "Refunds".

I'm concerned that I may have been misinforming my students (now graduates) that no refund is available here.

If it is, we should perhaps be encouraging all those with pension arrangements to join self-assessment just to get the additional relief?

Thanks (0)

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