The Education (Student Loans) (Repayment) (Amendment) (No 4) Regulations 2022 did two things of operational significance for payroll professionals:
1. It renamed the Postgraduate Loan to Plan 3 (though HMRC mostly still refer to it as the Postgraduate Loan); and
2. Introduced a new Plan 5 for English borrowers starting new courses from 01 August 2023
They key features of the Plan 5 Student Loan are:
- It has a lower repayment threshold (£25,000);
- It is a longer repayment period (40 years);
HMRC have communicated essential elements of Plan 5 to software developers:
- Plan 5 will be operated and collected in the same way as current undergraduate Loans (Plans 1, 2 and 4). Repayments will be made at 9% on earnings subject to Class 1 National Insurance over the lower threshold;
- The earliest repayments will start through payroll is 06 April 2026, i.e. from tax year 2026/27;
- 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. This will show the Plan type which should be collected;
- As with current undergraduate Loans, employers (via payroll systems) must only deduct one Plan at a time. This will be either Plan 1, 2, 4 or 5;
- Although, Plan 3 (the Postgraduate Loan) can be deducted at the same time as an undergraduate Loan;
- Importantly, from tax year 2026/27, Plan 5 will be the new default plan type to use. This means that where the employer is unsure of what Plan to use, Plan 5 will be the default as this has the lowest repayment threshold
For Bookkeepers
Whilst we already knew much of this information, it is good that HMRC have communicated to software developers well in advance of implementation in April 2026.
The P45 will not change but the Starter Checklist will have to be revised. In that regard, if you or your client produces their own version of the Checklist, these will need to be revised to include the new Plan as an option for new starters to select.
HMRC advise that communications and guidance will be published for employers, agents and borrowers ‘at a later date’.
