The Department for Education (DfE) have confirmed the annual updates to the Thresholds of Income Contingent Student Loans.
From 6 April 2020, the repayment threshold for pre-2012 (Plan 1) loans will rise to £19,390.
The repayment threshold for post-2012 (plan 2) loans will rise to £26,575 from 6 April 2020 to 5 April 2021.
The repayment threshold for Postgraduate loans continues to be £21,000.
Student Loan and Postgraduate loans are based on earning for Class 1 National Insurance. If an individual has NIable earnings under the relevant threshold, then the employer should not deduct any student or postgraduate loan deduction amount as there is no basis for a payroll deduction.
Employers do receive conflicting generic messages from HMRC as the automated systems incorrectly check for repayments by using the value of earnings subject to Income Tax which is an incorrect basis.
For example – In the hospitality trade, tips paid via employer payroll are subject to income tax, however, there is no National Insurance liability. So the taxable pay will exceed the Class 1 earning, Student Loan is assessed on the earnings and not tips.
Salary Sacrifice, flex benefit, amounts may also reduce NI earnings, yet benefits may be being payrolled (formerly or informerly) and therefore subject to Income Tax only (for example – medical benefits, tech schemes, etc.).
Although HMRC are aware of this automated system shortfall, the department appears reluctant to correct the system process error. Some employers may inadvertently be incorrectly assessing student loans against earning that should not be used for the deduction basis and making illegal unauthorised deductions from wages.
Responsible payroll solutions and services will operate correct calculations automatically using earnings subject to Class 1 NI in accordance with relevant law and also offer the automated acceptance of start and stop instructions from HMRC via SL1, SL2, PGL1 and PGL2 notifications.
