As part of agent update 112 published 20th September 2023, HMRC have provided a response to a submitted question around Pay-rolled Benefits in Kind and Student Loan Deductions for borrowers in Self-Assessment.
As a result of the question HMRC now confirm that for some student loan borrowers in repayment, that they were being over charged and HMRC plan to address this issue.
This only impacts those who are:
− repaying a student loan and
− receiving payrolled benefits in kind that are not subject to Class 1 National Insurance Contributions (NICs) though their employer and
− in Self-Assessment.
An article will appear in the Agents Update 112 and here is a link to revised guidance:
This guidance outlines:
If you have payrolled benefits in kind
Student and postgraduate loan deductions are not due on payrolled benefits in kind that are not subject to Class 1 National Insurance contributions.
Currently, our Self Assessment system is not able to tell the difference between these payrolled benefits in kind and the rest of the PAYE income. As a result, these are included in the student loan and postgraduate repayments calculations.
If your payrolled benefits in kind are not subject to Class 1 National Insurance contributions, you should complete the following steps to make sure your loan deductions are correctly calculated.
If you complete an online tax return
- Deduct your payrolled benefits in kind from your total PAYE income that is shown on your P45 or P60 (your employer can provide the figures if you are unsure).
- Go to the ‘Fill in your return’ section (section 4), find the ‘Income for your employer’ section and enter the figure from step 1 into the ‘pay from employer’ (box employment 03).
- Select ‘yes’ when asked if you have received taxable benefits from your employer.
- In the next section, enter the payrolled benefits in kind figure in the ’other benefits’ box (box employment 20).
- Enter the following note in ‘additional information’ box — ‘I have entered my payrolled benefits in kind in the ‘other benefits’ section as I’m a student loan borrower’.
From Monday 25th September HMRC will be writing to those affected, giving them the option to contact HMRC if they want their over-charged student loan deduction refunded.
HMRC apologises for the error and indicates that the additional amounts overcharged have been sent to the Student Loans Company and off-set against the student loan, reducing the balance and any interest that may be due.
How did this happen?
When HMRC self assessment process works out student loan repayments, one of the figures is the total PAYE income declared on the Self-Assessment tax return. If this figure includes payrolled benefits in kind, then Self-Assessment would calculate student loan repayments on this.
Student loan deductions are not due on payrolled benefits in kind that are not subject to Class 1 NICs and currently HMRC systems are inadequate and unable to distinguish between payrolled benefits in kind and the rest of the PAYE income. Because of this error in design, HMRC have included these payrolled benefits in kind values in calculations when they shouldn’t. This resulted in a higher student loan charge.
What is HMRC doing to correct the error?
They are writing to those who have been impacted giving them a choice to have a refund or allow the overpayment to be offset against their loan balance.
HMRC are working to fix the problem so that payrolled benefits in kind that are not subject to Class 1 NICs can be entered as a separate amount to the total PAYE income on the Self-Assessment tax return.
Until a fix is introduced, they are suggesting steps to take when completing the next Self-Assessment tax return, to make sure the tax payer pays the right amount of student loan repayments.
Has payroll done anything wrong?
Simply no, payroll will be operating the collection of student loan deductions (including those for post graduate loans) correctly. This will impact employees, but relates to their self assessment which would have required payment of an additional amount in error.