Payroll 2026/2027 – Student Loan Plan 5

HM Revenue and Customs (HMRC) Software Developers Support Team (SDST) have started to release change information that impacts payroll calculations from April 2026.

This first area is the addition of undergraduate Student Loan Plan 5. The RTI instruction SL1 will start to indicate the use of Plan 5 in March 2026 in readiness for operating from 6th April 2026.

PAYE RTI 2026-27: Student Loan Plan Type 5

Dear PAYadvice.UK

Please find below information regarding the new student loan Plan 5, provided for software developers by our colleagues at HMRC’s Customer Strategy and Tax Design.

Student Loan Plan 5

We would like to notify you that, under legislation The Education (Student Loans) (Repayment) (Amendment) (No 4) regulations 2022, the Department for Education (DfE) announced the introduction of a new student loan Plan type 5.

Plan 5 is a new student loan repayment plan available to students starting course from August 2023 onwards. It features a lower repayment threshold, and a longer repayment period compared to existing plans.

Key details of Plan 5 are as follows:

• Plan 5 will be operated and collected in the same way as current plan types 1, 2 and 4.
• The earliest repayments will start for PAYE is 6th April 2026.
• Repayments will be made at 9% on earnings over a threshold of £25,000 per annum (before deductions from pay subject to Class 1 NICs).
• Employers will start to receive Student Loan start notices (SL1) in March 2026 for Plan 5 borrowers due to go into repayment from April 2026.
• The start notice will show the plan type which should be collected. As with current guidance employers:

i) can only deduct one plan type at a time – Plan 1 or Plan 2 or Plan 4 or, from April 2026, Plan 5

ii) can deduct postgraduate loan (Plan 3) at the same time as a student loan Plan 1 or Plan 2 or Plan 4 or new Plan 5).

• From 2026/27, Plan 5 will be the new default plan type to use, where employees don’t know their plan type, until the employer receives the start notice.

Updated technical specifications will be made available to developers in due course. Current plans are to provide the artefacts for RTI in late July, and for the Data Provisioning Service later in the summer.

Communications and guidance will be published for employers, agents and borrowers at a later date.

Kind regards,

Software Developer Support Team 
HMRC CDIO EPS | Enterprise Integration Services

Opinion

The September 2023 educational year start saw a major shift in student finance as new ‘Plan 5’ loans launched for new higher education starters from England. On the surface it looked like a minor tweak, in practice it increases the cost to borrowers by over 50% for many typical graduates and double for a few. The first deductions from pay occur from 6th April 2026.

The oddity is that Plan 5 becomes the default applicable by employers across the United Kingdom where the student loan plan is not known but an employee has indicated they are subject to Student Loan deductions. Yet Plan 5 applies to England and not necessarily the other devolved nations. For a Scottish graduate they are likely to be on Plan 4.

So it may seem strange that for new starter who have indicated a student loan but not the plan or presented a P45 with the continue student loan deduction marked but no plan type will be defaulted to Plan 5 even though in Scotland!

Also where multiple plans are indicated, the Plan 5 will take precedence.

So the order of priority unless indicated by issue of notice SL1 is

• Plan 5
• Plan 1
• Plan 4
• Plan 2

It couldn’t be simpler. Of course good payroll software will automatically apply the correct priorities and also interact automatically with SL1 and SL2 start and stop instructions.

For reference, the current student loan thresholds and deduction rates are shown:

The Annual thresholds for other student loan Plan Types are due to be announced at the end of summer 2025.

PAYadvice.UK 25/6/2025 updated