Guidance

Student Loan repayments: guidance for employers

How different circumstances affect employees' Student Loan deductions.

Plan types and thresholds

With effect from April 2018, the thresholds for making Student Loan deductions are:

  • Plan 1 - £18,330 annually (£1527.50 a month or £352.50 a week)
  • Plan 2 - £25,000 annually (£2083.33 a month or £480.76 a week)

Starting Student Loan deductions and checking plan type

You should work out the correct figure of employee earnings on which Student Loan deductions are due. The figure to use is the same gross pay amount that you would use to calculate your employer’s secondary Class 1 National Insurance contributions (NICs).

Start making Student Loan deductions from the next available payday using the correct plan type, which you will select from a dropdown box on your HM Revenue and Customs (HMRC) submission, if any of the following apply:

  • your new employee’s P45 shows deductions should continue - ask your employee to confirm their plan type
  • your new employee tells you they’re repaying a Student Loan - ask your employee to confirm their plan type
  • your new employee fills in a starter checklist showing they have a Student Loan - the checklist should tell you which plan type to use
  • HMRC sends you form SL1 ‘Start Notice’ - this will tell you which plan type to use
  • you receive a Generic Notification Service student loan reminder - ask your employee to confirm their plan type

NB: if you’re operating ‘Off Payroll’, follow the guidance Off-payroll working in the public sector: reform for fee-payers instead.

If your employee doesn’t know which plan type they’re on, ask them to check the Student Loan Company (SLC). If they’re still unable to confirm their plan type, start making deductions using Plan type 1 until you receive further instructions from HMRC.

If you receive a form SL1 ‘Start Notice’ for someone you have never employed phone the Employer Helpline. HMRC will investigate and contact you again if necessary. File away the SL1, ‘Start Notice.’

If you receive form SL1 ‘Start Notice’ for someone who claims never to have had a Student Loan start making deductions, in line with the SL1, ‘Start Notice.’ Continue doing so unless HMRC tells you otherwise. File away the SL1, ‘Start Notice.’

If you receive form SL1 ‘Start Notice’ for someone for whom you’re already making deductions you should:

  • check the plan type on the SL1 ‘Start Notice’ you have just received
  • if the plan type is different to the one you’re currently using, update your payroll software and start making deductions using the new plan type at the next available pay day
  • if the plan type is the same as the one you’re currently using, continue to make deductions
  • if your employee thinks they have overpaid their deductions they should contact the SLC

If you receive form P45 sometime after an employee has started to work for you, and there is a gap since their last employment or the employee didn’t indicate in their starter information, or tell you they were repaying a Student Loan you should ask your employee to confirm their plan type and start making deductions from the next payday. If your employee doesn’t know their plan type they should use the tool on the SLC website.

Don’t make any deductions in arrears.

Where a new employee without a P45 fills in either a starter declaration or an expat starter checklist which indicates Student Loan deductions apply you should start making these deductions from the next payday.

An expat starter checklist is only to be used where employees have been seconded to work in the UK whilst remaining employed by an overseas employer. More information is given in the guide to PAYE and National Insurance contributions.

Generic Notification Service (GNS) messages

HMRC will send two types of student loan GNS reminders.

One is a reminder to start deductions where the following applies

You submit a Full Payment Submission (FPS) for an employee who has a Student Loan deduction due and the FPS shows a figure of nil.

This GNS reminder is confirmation that HMRC has sent or is in the process of sending you a SL1 ‘Start Notice’ for the employees shown.

The other is a reminder to make deductions using the correct plan type where the following applies

You submit an FPS for an employee and have selected the plan type from the drop down box on your payroll software and the plan type declared on the FPS does not match what HMRC hold for that employee.

These reminder will be sent as GNS messages to your Online PAYE account. HMRC recommmends that you register for email alerts for these reminders and may contact you to make sure the correct deductions begin.

For each employee shown on the reminder, you should start making the correct deductions from the first available pay day. You should look at the SL1 ‘Start Notice’ or completed starter checklist for details of the correct Student Loan plan type to use. If you don’t have either of these, ask your employee the starter checklist questions. This will allow you to start deductions using the correct plan type.

If you’re paying an occupational pension rather than a salary, you should ignore any Student Loan GNS message.

Stopping Student Loan deductions

Stop making Student Loans deductions when:

  • you receive a SL2 ‘Stop Notice’ from HMRC
  • in exceptional circumstances, HMRC ask you to stop making deductions - if this is the case they’ll tell you in writing or by phone and then confirm in writing
  • you’re an Educational Institution or Local Education Authority in England and Wales and a teacher gives you a letter from the SLC telling you to stop making deductions as the teacher has been accepted by the Repayment of Teachers’ Loan scheme

SL2 ‘Stop Notice’ received

Stop making deductions from the first available payday after the deduction stop date shown on the notice. The ‘first available payday’ is the first payday on which it’s practical to apply that notice.

If the borrower is still employed by you and you use Basic PAYE Tools for this employee edit the employee details in the employer database by removing the Student Loan borrower indicator and keep the SL2, ‘Stop Notice.’

If the borrower is no longer employed by you and you haven’t submitted leaver details to HMRC:

  • leave the box headed ‘Enter ‘Y’ if Student Loan deduction is to be made’ blank
  • submit leaver information in RTI and provide employee with P45 parts 1A, 2 and 3

If you’ve submitted leaver details you should keep the SL2 ‘Stop Notice’.

You can’t stop making deductions because your employee asks you to. Your employee should contact Student Loans Company if they think they have overpaid their loan.

Employee dies

Don’t make any deductions from any payments made after an employee dies as these payments aren’t subject to Class 1 NICs. This applies even though the payment may relate to a period prior to death, for example, unpaid wages.

Employee leaves

If you make a payment to a borrower who is no longer your employee, calculate the Student Loan deductions on the same amount, and for the same earnings period as for employer’s secondary Class 1 NICs.

When an employee leaves, check if you’re making Student Loan deductions.

If you have received:

  • a SL1 ‘Start Notice’ with a start date in the current or a previous tax year
  • a P45 with a ‘Y’ in box 5
  • starter information indicating Student Loan deductions apply

You should:

  • fill in P45 with ‘Y’ in box 5 indicating Student Loan deductions should continue
  • send leaver information to HMRC in RTI and give your employee P45 parts 1A, 2 and 3
  • enter ‘Y’ on P45 box 5 even if your employee hasn’t earned enough to make Student Loan repayments

You should follow these procedures even if you’re not making Student Loan deductions because a teacher who is leaving your employment has been accepted by the Repayment of Teachers’ Loan scheme and has given you a letter from the SLC confirming deductions should stop. This letter is not a written instruction from HMRC.

If you receive form SL2 ‘Stop Notice’, written instructions from HMRC to stop making deductions or form SL1 ‘Start Notice’ with a start date which is after they leave your employment, you should:

  • fill in P45 leaving box 5 blank
  • send leaver information to HMRC in RTI and give your employee P45 parts 1A, 2 and 3

Employee has more than one job

If an employee has more than one job you should ignore earnings from the other employer.

If the employee has more than one job with you follow the aggregate rules if they apply. Otherwise treat both employments separately.

Change of pay interval

If the interval between the payment of an employee’s earnings changes, for example, from weekly to monthly, you need to adjust the deductions for the new earnings period.

Work out the Student Loan deduction from the first payment after the change based on the new earnings period. This may mean you include details of pay and Student Loan deductions already included in the last pay period before the change.

If you’ve included a payment already made in the first of the new longer periods, the payment already made, and the deduction worked out on it, should be taken into account when working out the Student Loan deduction for the new period as a whole.

Example

An employee repaying on Plan 1 is paid £500 weekly. The pay interval changes to monthly in the third week of the month. The monthly pay is £2,000. The £2,000 payment in week 4 is made up of the two £500 payments made in weeks 1 and 2 plus £1,000 for weeks 3 and 4.

Week Example
1 Student loan deductions on pay of £500 are £13 (weekly pay)
2 Student loan deductions on pay of £500 are £13 (weekly pay)
3 The employee is now monthly paid and receives no pay in this week
4 Student loan deductions on pay of £2,000 are £42. £26 has already been deducted so the amount now due to be deducted is £16 (£46 minus £26)

More information on what to do if the interval between the payment of an employee’s earnings changes is found in Chapter 1 of the guide to PAYE and National Insurance contributions.

The guidance given for NICs purposes also applies to Student Loan deductions.

Errors deducting Student Loan repayments

Follow this process unless you have received an SL2 ‘Stop Notice’. If you’ve received a SL2 ‘Stop Notice’ you mustn’t make any refund. Instead, your employee should contact Student Loans Company.

Current tax year

If you’ve made an over deduction and you can repay it to the borrower during the current tax year you should do so, amending your Year-To-Date payroll records.

If you can’t repay it phone the Employer Helpline.

If there’s been an under-deduction and you can collect it from the borrower in the current tax year you should do so. Correct your Year-To-Date payroll records to reflect what was actually deducted.

If you can’t collect it phone the Employer Helpline.

During each period you can only collect an additional amount less than, or equal to, the amount that is due to be deducted in that period.

Example Amount
Under-deduction in week 8 £25
Deduction from tables in week 9 £15
Under-deduction recovered in week 9 £15
Maximum total deduction £30*

(*that is, £15 week 9 deduction + £15 under-deduction)

The remaining £10 under-deduction may be recovered in later pay periods following the above rules.

Previous tax year

If you’ve submitted your final Full Payment Submission for that year you don’t need to take any further action. If asked, you should tell your employee to contact Student Loans Company.

If you haven’t submitted your final Full Payment Submission for that year for any over-deductions you can repay the employee and amend your records so the final Full Payment Submission reflects the correct amounts. For under-deductions you don’t need to take any further action. Repayment of the balance of the loan will be covered by future deductions.

Variable interest rates

From April 2017, SLC set interest rates for Plan 2 loans based on an individual’s income. This income information is taken from the Full Payment Submissions you make, and is passed by HMRC to SLC. There is no action for you to take, however, some employees may ask you to check and confirm the information you have sent to HMRC.

Employees working abroad

Employee paid from the UK

If you’re operating PAYE as though the employee were in the UK continue to make Student Loan deductions no matter how long they’re working abroad.

Employee paid locally abroad

If a borrower is paid abroad they must contact the SLC to have a repayment schedule set up.

Court orders and how they affect Student Loan deductions

In addition to Student Loan deductions, you may have to consider a court order such as an Attachment of Earnings Order (AEO) or Deductions from Earnings Order (DEO).

The order and amount of Student Loan deductions depends on whether the:

  • AEO/DEO is a priority or non-priority order
  • AEO/DEO is based on specific or percentage amounts
  • total deductions including student deductions means your employees pay is less than the protected earnings level specified in the court order

Order of deduction – England, Wales and Northern Ireland

Priority order – percentage based

Some priority orders – Council tax or Community Charge AEOs or Income Support Deduction notices – are percentage deductions.

Don’t deduct any Student Loan repayments until all such orders are paid in full.

AEOs issued by Magistrates’ Courts under The Courts Act 2003 Regulations are percentage based, but should be treated as ‘Priority order – specific amounts’ and the Student Loan deduction calculated as normal.

Priority order – specific amounts

If there is no specified level of protected earnings:

  1. Apply the priority order against the borrower’s attachable earnings before Student Loan deductions are made.
  2. Calculate the Student Loan deductions using payroll software or the SL3 Student Loan Deduction Tables.

If there is a specified level of protected earnings:

  1. Apply the priority order against the borrower’s attachable earnings before Student Loan deductions are made.
  2. Calculate the Student Loan deductions.
  3. Check the deduction of court orders and Student Loan deduction doesn’t reduce the available income below the level of protected earnings.

Where the deduction of Student Loan and court orders reduces the available income below the level of protected earnings, the maximum amount of Student Loan deductions is the difference between the following:

  • the net attachable earnings after deduction of the AEO/DEO
  • the level of protected earnings rounded down to the nearest pound, if negative, set to zero

Non-priority orders

Take away Student Loan deductions before non-priority court orders.

Order of deduction – Scotland

Scottish court order

Don’t make any Student Loan deductions if you’re required to apply any of the following:

  • an Earnings Arrestment
  • a current Maintenance Arrestment
  • a Conjoined Arrestment Order

Deduction of Earnings Order

Make student deductions after the DEO, which is a priority order, but the employee’s pay must not fall below the protected earnings level.

Scottish court orders and DEOs

Don’t make any Student Loan deductions if you have a DEO and a Scottish court order to apply.

Scottish Debt Arrangement Scheme (DAS)

Collection of Student Loan deductions is not affected by instructions to make deductions under the DAS.

Repayment of Teachers’ Loan scheme

The Repayment of Teachers’ Loan scheme (RTL) is closed to new applicants but it continues to write off the Student Loans of teachers already on the scheme, providing they remain eligible. The government meets the tax and NICs costs on the teacher’s behalf, so the teacher gets the full value of the write-off.

Teachers currently on the scheme must report any change in personal circumstances to the SLC immediately as it may affect entitlement. Teachers are allowed breaks from the scheme when they aren’t in eligible employment but may re-join RTL at a later date. A single break from the scheme mustn’t exceed 12 months and scheme breaks mustn’t exceed 36 months (or 60 months if the break is for childcare) in total. Loans aren’t written off during a scheme break.

How the scheme works

Each September, the SLC writes to schools to confirm employment details of eligible individuals from the previous academic year. If the school confirms the teacher was eligible for RTL throughout the year, their Student Loans are written off for that year.

Where a full-time teacher has an income contingent Student Loan (advanced under the RTL scheme), the amount outstanding at the point of entry to the scheme, plus interest, will be written off in annual instalments over a period of up to 10 years so long as the teacher remains in an eligible post. During that period, no repayments will be collected on any income earned from the eligible teaching post.

Part-time teachers get their loans written off on a pro-rata basis to the full-time equivalent hours they work.

The following procedures apply:

Full-time employees:
If you’re making Student Loan deductions, HMRC sends an SL2 ‘Stop Notice’
If the employee leaves the employment, and the employer has received a Stop Notice, when completing a form P45 don’t enter a ‘Y’ in the ‘Continue Student Loan Deductions’ box on the P45
If the employee moves to a non-eligible post and still has a loan outstanding, HMRC will send a SL1 ‘Start Notice’ to the new employer
Part-time employees:
The SLC gives the employee a letter to give to their employer asking to suspend Student Loan deductions. This isn’t an SL2 ‘Stop Notice’ and your records will continue to reflect the teacher as a Student Loan borrower
When the employee leaves the eligible part-time post, you must still enter a ‘Y’ at box 5 on form P45
The borrower has to apply for eligibility to remain in the RTL scheme each time they move to a new part-time job. If the new part-time job is an eligible employment, the SLC gives the employee a new letter

If you haven’t received a stop or suspend notice for an employee who says they’ve been accepted for the RTL scheme, you must:

  • continue making deductions
  • ask your employee to contact the SLC to explain why a stop notice or a suspend notice hasn’t been issued

Record keeping

You should keep records of all wages, and other documents relating to the calculation and deduction of student loan repayments, including forms SL1 ‘Start Notice’ and SL2 ‘Stop Notice’, for a period of at least 3 years after the end of the tax year to which they relate.

Enter the amount of student loan deductions in the appropriate box on your employee’s form Full Payment Submission, and P60 (whole pounds only).

Published 15 July 2014
Last updated 6 April 2018 + show all updates
  1. Rates, allowances and duties have been updated for the tax year 2018 to 2019.
  2. Guidance added to explain what employers must do after receiving a Generic Notification Service (GNS) reminder for Student Loans.
  3. Additional content has been added under 'Starting Student Loan deductions and checking plan type' for employers who receive SL1 start notices for employees from whom they are not required to make National Insurance deductions.
  4. Changes made to cover overpayments due to a change of repayment plan type and circumstances where an employer should use default plan 1.
  5. This updated guide replaces the E17 Employer Helpbook. This contains full guidance on how to deduct Student Loans and covers the introduction of a second repayment threshold.
  6. First published.