The Martin Lewis Money Show on 06 November 2024 correctly stated that millions of Student Loan borrowers may have overpaid repayments and may be entitled to a repayment from the Student Loans Company (SLC).
In the first instance, it is worth saying that Student Loans are (correctly) calculated on a per-pay-period basis according to the value of pay subject to Class 1 National Insurance Contributions (NICs). However, there are annual thresholds that apply for all Lonas as follows:
|
Plan
|
%age
|
Threshold
|
|
|
|
£
|
|
1
|
9%
|
24,990
|
|
2
|
9%
|
27,295
|
|
3 (PGL)
|
6%
|
21,000
|
|
4
|
9%
|
31,395
|
So, over the course of a tax year, no Loan repayments are due if the annual threshold is not exceeded, £24,990 for Plan 1, £27,295 for Plan 2 etc.
However, there may be reasons a borrower overpays their Student Loan and the reason fall into the following categories:
1. Possibly, the pay subject to NICs was higher in some pay periods than usual, for example, the employee received a large overtime payment of a bonus. The way that Loan repayments are calculated means the repayment is calculated according to the pay subject to NICs in the pay period. However, at the end of the tax year, the legislative position is that the borrower is not required to make a repayment if the annual threshold has not been exceeded
2. Maybe, the payroll department has used the wrong Loan Plan type, e.g. Plan 1 with a lower threshold when the borrower has a Plan 2 Loan with a higher threshold
3. Perhaps the borrower has indicated they have a Loan they have to repay and this has been passed to payroll to make the repayment deduction. However, the obligation to start repaying only starts in the April after the course has finished. In this instance, the borrower has over paid because they started to make repayments early
4. Or it could be that a Loan repayment was taken via payroll but the Loan balance had been cleared – either it has been repaid in full or the balance has been wiped clean by SLC
With reason (1), there is little that payroll or employers can do. They have operated the system correctly and repayments should not be given in the payroll. With the others, the message for borrowers (payroll and employers) is to make sure that the correct Loan type is assigned to the employee and there is an obligation to repay.
Mr Lewis outlined how millions of borrowers have overpaid and indicated how they can ask SLC for a repayment.
For Bookkeepers
This is not a new issue and is one that has been highlighted in previous tax years. Whilst we have a duty of care to try and ensure we are making the right Plan type deduction, there is little that can be done if we are told to use Plan 1 but the borrower has another Loan Plan with a higher threshold.
For anyone processing payroll it is important to say that this is generally NOT our fault, nor is it the fault of the employer. A lot comes down to the way that the repayment process works via payroll.
Therefore, in light of the publicity that Mr Lewis’ show received and the number of repayments due, it is worthwhile being in a position to give advice if this is requested by a borrower or client. ICB gives you some tips below with the overriding advice that overpayments from previous tax years CANNOT be corrected via the payroll:
1. If the borrower is on the wrong Plan type in the current tax year, ensure you are operating the correct instruction from HMRC (or as per the Starter Checklist). If this is incorrect and you have an HMRC instruction to use another Plan type, correct this in the payroll. HMRC will expect that in-year adjustments as a result of errors are corrected by the employer
2. After the tax year has finished and the borrower sees that their annual income was below the threshold for the previous tax year, the employer CANNOT correct this. Instead, advise the borrower to sign into their Student Loan repayment account and ask for a refund
3. If the borrower has overpaid because they have started to make repayments earlier than required, advise them to contact SLC (details below)
4. If the borrower has overpaid because their Loan has been repaid, there should be no action required as this should be automatic. It does not hurt to call SLC though
SLC Contact Details
Post
Student Loans Company Ltd
10 Clyde Place
Glasgow
G5 8DF
Telephone
- 0300 100 0611 (borrowers from England, Northern Ireland or Scotland)
- 0300 100 0370 (Wales)
Contact the Student Loans Company Online
Use the Gov.UK link where the borrower can access information if they have:
- Annual income that was below their Plan type threshold
- Repaid more than their Loan balance
- Made repayments before the legal requirement (the April after finishing the course)
- Had deductions made on the incorrect Plan type
