SL repayments: borrower within PAYE: when employer should stop deducting
The employer should continue making Student Loan deductions until either
- A Stop Notice is received from HMRC
- Specific authority is received from HMRC to stop making deductions
The employer must not stop making Student Loan deductions for any other reason, for example, if the employee states that the loan has been paid off.
Stop Notice (Form SL2)
A Stop Notice is automatically issued by HMRC when
- Instructions are received from the Student Loans Company, normally when it is calculated that the loan is about to be fully repaid
- A Full Payment Submission (FPS) is processed which contains a student loan amount but the taxpayer is not a borrower and deductions may, therefore, have been made in error
In deciding when to authorise the issue of a Stop Notice the Student Loans Company will take into account the pattern of repayments made during earlier years and the balance remaining on the borrower’s account. Inevitably, however, information held by the Student Loans Company will not be up to date and their prediction could be affected by factors such as
- Unexpectedly large pay rises
- Change of employment
- Periods of unemployment
The prediction should not therefore be seen as a precise science and in many cases the borrower will overpay the balance outstanding on their loan. To help avoid this, the SLC will offer borrowers who are either PAYE only or who are a mixture of PAYE and Self Assessment (SA) the option to switch to a direct debit arrangement as they enter the final 23 months of their loan. This arrangement removes the borrower from the HMRC collection process and prevents the borrower from over repaying their loan.
When the employer receives a Stop Notice, directions as to when to stop making Student Loan deductions are clearly stated as follows
‘Notice to employer to stop Student Loan deductions.
Deductions must stop on the first available pay day after the Student Loan deduction stop date shown below’
Unless there are exceptional circumstances the employer should observe the instructions on the Stop Notice. If the borrower wishes to query the deductions being made he or she should take this up with the Student Loans Company.
Employer completing form P45 - The ‘old’ employer
The form P45 includes a box headed ‘Enter Y if Student Loan deduction is due to be made’ to indicate that the taxpayer is a borrower for whom Student Loan deductions have been authorised.
When a borrower ceases employment the employer should enter a ‘Y’ in the box headed ‘Enter Y if Student Loan deduction is due to be made’ if the employer has previously received
- A Start Notice from HMRC
- Student loan information from the employee as part of the ‘starter checklist’ procedures
- A form P45 with a ‘Y’ in the box headed ‘Continue Student Loan Deductions’
- No Stop notice has been received from HMRC
In these circumstances a ‘Y’ should be entered in the box headed ‘Enter Y if Student Loan deduction is due to be made’ on form P45 even if the employer has not actually made any deductions, for example, if the borrower’s wages were too low for deductions to be made.
Notification by HMRC
There may be circumstances in which a Start Notice has been issued to the employer in error. For example, if the borrower has provided the Student Loans Company with an incorrect NINO which relates to a taxpayer possessing the same surname or date of birth. The result could be that the Student Loans Company record has been matched against the wrong PAYE record.
If the employer complains that the Start Notice is clearly inappropriate then you should
- Advise the employer to make no further deductions whilst enquiries are made
- Confirm the position to the employer in writing, retaining a copy
In all other cases
Contact the Student Loans Company giving the facts and asking them to
- Investigate the position
- Authorise repayment of any deductions
- Authorise a Stop Notice if appropriate
- Ask the employer to repay deductions (if appropriate). For more information see CSLM20000 onwards
A Stop Notice will be automatically issued if authorised by the Student Loans Company.
This action should only be taken if there has clearly been a serious error.
In cases where the borrower or employer is querying whether repayments should be made because of the balance on the borrower’s account, the borrower should contact the Student Loans Company in the normal way. Deductions will continue until either
- A Stop Notice is issued
- You are advised by the Student Loans Company to instruct the employer to stop making deductions. This will be a very rare occurrence