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HMRC internal manual

Collection of Student Loans Manual

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HM Revenue & Customs
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SL repayments: calculation of loan repayments: how are repayments calculated?

Simple calculation

The simple calculation of Student Loan repayments is

  • Borrower’s income

Less threshold

Balance (income less threshold) X rate = Student Loans repayments for the year

However, the following points should be noted

Income

1. Employment income - The amount of income to include for Student Loan repayment purposes is the earnings figure as would be calculated for employer’s secondary Class 1 NICs. (Not income liable to tax). This requires particular attention when the borrower receives benefits and / or expenses.
   
2. Trading income - In calculating the income for the tax year the following should be excluded
  * Unearned income if the amount of such income is less than £2,000. For more information see CSLM16035
  * Income which has been relieved by losses under ITA 07/S64(2)
  * Income which has been relieved by annuities, and so on for which relief is given under Part XIV ICTA 1988
  In cases of difficulty refer the matter to your manager.

Threshold

Where the repayments are calculated on total income for the year, for example where the borrower is self employed, there is no problem with the threshold. However, where a borrower is liable to PAYE then each pay period has to be looked at in isolation by the employer and the threshold is the pro rata amount of the annual threshold that relates to that pay period. Payroll software will take care of this calculation for the employer.

For weekly or monthly paid borrowers the appropriate pro rata thresholds can be found in the SL3:  Student Loan deduction tables. However payroll software will automatically use the correct amounts.

Apparent inconsistencies can arise if irregular amounts, such as bonuses, are paid in certain pay periods. This is brought to your attention in case queries are received.

The following examples assume an annual threshold of £17,495 and a rate of 9 per cent.

Example 1

Borrower receives a salary of £15,000 paid monthly. In March a £3,000 bonus is paid

You may expect the borrower to repay £45 Student Loan repayments for the year (£18,000 - £17,495) X 9 per cent.

However, the actual position will be

Months April - February - Salary £1,250 per month, therefore NIL deductions because the income is below the monthly threshold

Month of March - Salary + bonus = £4,250. Therefore deductions = £251 ((£4,250 - £1,457) X 9 per cent)

The figure of £251 is payable under Part IV of the Regulations and no repayment is due to the borrower because

  • The employer has correctly deducted the amount in accordance with the Regulations

And

  • The borrower’s income for the year exceeds the threshold

Example 2

Borrower receives a salary of £11,400 paid monthly. In March a £3,000 bonus is paid

You may expect the borrower to repay £NIL Student Loan repayments for the year because total income was less than the £17,495 threshold.

However, the actual position will be

Months April - February - Salary £950 per month, therefore NIL deductions because the income is below the monthly threshold

Month of March - Salary + bonus = £3,950. Therefore deductions = £224 ((£3950 - £1,457) X 9 per cent)

Although the employer has deducted repayments correctly, the borrower’s income for the year does not exceed the threshold. In these circumstances the borrower may claim repayment from the Student Loans Company.