CSLM16030 - SL & PGL repayments: calculation of loan repayments: how are repayments calculated?
Simple calculation
The simple calculation of Student Loan and or Postgraduate Loan repayments is:
Borrower's income
- Less threshold for the relevant loan and or Plan type
- Balance (income less threshold) X rate = Student Loans and or Postgraduate Loan repayments for the year
The following points should be noted:
Student loan Plan 1, Plan 2, Plan 4 and Plan 5 have a different threshold and same rate
Postgraduate loan have a different threshold and rate
Student Loan plan 1 or 2 or 4 or 5 and Postgraduate loan can be repaid at the same time.
Income
1. Employment income - The amount of income to include for Student and / or Postgraduate Loan repayment purposes is the earnings figure as would be calculated for employers 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 £2000. 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 198
Threshold
Where the repayments are calculated on total income for the year, for example where the borrower is self employed or completes a self assessment tax return for another reason , the annual threshold will be used.
If the borrower uses Making Tax Digital (MTD) for Income Tax, the student loan or postgraduate loan repayment, or both will be calculated as part of each quarterly update and the tax return where the total income exceeds the relevant repayment threshold. Where income exceeds the threshold, each quarterly update will generate an estimated student loan or postgraduate loan repayment. These estimates are not payable during the year. The final repayment charge is calculated through the tax return and included in the overall tax liability , which is due to be paid by 31 January, following the end of the tax year
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 and rates can be found in the SL3: Student Loan and Postgraduate Loan deduction tables. However payroll software will automatically use the correct amounts.
Although the employer has deducted repayments correctly per period, the borrower's income for the year may not exceed the annual threshold. In these circumstances the borrower may claim repayment from the Student Loans Company.