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HMRC internal manual

Collection of Student Loans Manual

From
HM Revenue & Customs
Updated
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SL repayments: borrower within PAYE: when employer should start deducting

There are three circumstances in which an employer should start making Student Loan deductions from an employee.

1. If the employer receives a Start Notice from HMRC authorising deductions to commence
   
2. If a new employee hands the employer a form P45 with a ‘Y’ in the box headed ‘Student Loan Deductions to continue’
3. If a new employee supplies ‘starter checklist’ information indicating that they are in the process of repaying an Income Contingent student loan.

In no other circumstances should the employer commence making Student Loan deductions.

Start Notices (Forms SL1)

A Start Notice is issued automatically to an employer when

  • A match is made for the first time on a PAYE / SA record and the borrower is due to commence repayment of the Student Loan
  • The monthly borrower matching process runs to identify borrowers who have moved from self employment to employment

The Start Notice gives instructions as to when Student Loan deductions should commence and which plan type to use. These are

‘Student Loan deductions must start from the first available pay day after the start date shown below whenever total pay exceeds the Student Loan threshold’

The employer should always follow these instructions.

Note: A Start Notice is not issued annually. It continues to apply until a Stop Notice is issued, even though this will normally cover a period of several years.

Employer receiving the form P45 - The ‘new’ employer

The form P45 includes a box headed ‘Student Loan Deductions to continue’ to indicate that the taxpayer is a borrower for whom Student Loan deductions have been authorised.

If the employee hands in a form P45 with a ‘Y’ in the box headed ‘Student Loan Deductions to continue’ the new employer should

  • ask their employee which plan type they are on - plan 1 or plan 2.
  • update their payroll software to indicate that the employee is in the process of repaying an Income Contingent student loan.  The payroll software will then start to calculate Student Loan deductions from the next available pay day.

In exceptional cases a new employer may receive a form P45 with a ‘Y’ in the box headed ‘Student Loan Deductions to continue’, but, the employee is not a borrower. In these cases, when the employer submits his monthly Full Payment Submission (FPS) a Stop Notice will automatically be issued to the new employer who may repay any deductions already made in that employment. Note: Do not confuse this with the situation where a borrower changes employment and a Stop Notice is issued shortly thereafter because the borrower has repaid the loan. Obviously in this case no repayment would be made by the employer.

Employer action - Borrower starts new employment but has no form P45

The new employer should follow normal Real time Information (RTI) procedures which instruct the employer to gather ‘starter checklist’ information. This checklist includes asking the employee if they are in the process of repaying an Income Contingent student loan and which plan type they are on.  This will either be plan 1 or plan 2.

If the employee confirms that they should be repaying a student loan, the new employer should

  • ask their employee which plan type they are on - plan 1 or plan 2
  • update their payroll software to reflect that the employee is repaying a student loan.  The payroll software will then calculate and record Student Loan deductions.

The employer may also receive a Start Notice for these cases provided HMRC confirms that the employee is a borrower. If the employer has already started to make Student Loan deductions, they should

  • check they are using the correct plan type
  • file the start notice away.

If the employee does not tell his employer that he is in the process of repaying a student loan the HMRC computer will subsequently check the position and issue a Start Notice if appropriate. Upon receipt of a Start Notice, the employer should

  • Update their payroll software to reflect that the employee is repaying a student loan.
  • The payroll software will then calculate and record Student Loan deductions.