What has a student loan got to do with my business
The only time an employer will have to get involved with Student Loans is when they employ an ex-student who had a loan from the government after August 1998. The legislation came into effect on 6th April 2000. The loans are administered through a non-profit making, non-Departmental Government body, called The Student Loans Company which is funded by the Department of Education.
An employer will be informed of any employee for whom they have to make deductions from their wages to repay a student loan. Apart from making the correct deduction and subsequent payment to HMRC of that deduction and record keeping the employer has no responsibilities whatsoever regarding the loan and is not allowed or expected to answer questions or act upon instructions from the employee concerned.
When you take on a new employee check to see if the SL box on the P45 contains a 'Y', if so you then need to commence deductions from the next payday or as soon after as is possible. If you receive a start notice from HMRC you should commence deductions from the payday after the start date on the form. There are no other circumstances under which deductions should be made.
Making the deduction
As with most orders of deduction from wages there is a protected wage amount and a priority of the order.
A protected wage amount is the amount of wage that must be left after the deduction has taken place.
The priority of a deduction is the order, in relation to other deductions, that the deduction is made. Each type of order has it's own priority, the date of receipt of a deduction instruction has no effect on the priority of the order.
The order with the highest priority is deducted first from the Class 1 NI-able earnings up to and not exceeding the protected amount for that order. Each order is then deducted in exactly the same way taking into account it's own priority and protected amount and the protected amount of any higher priority orders. In most cases there will probably no other orders in force.
The student loan deduction is made at the same time as PAYE tax and NIC are taken. The deduction must be listed on the payslip and should be rounded down to a whole pound. Student loan repayments are not a deduction for tax or National Insurance purposes.
If a deduction can not be made in full during one pay period it can't be made up in any future period, in other words, the deductions are not cumulative. A fee can not be charged for making the deduction as can be made for some other types order.
Can refunds of the deductions be made
The only time a refund can be made is if a mistake in the calculation of the deduction has been made. Refunds can not be made for any other reasons, these will be dealt with by the Student Loans Company upon application by the employee.
An employee will be due a refund of deductions made if their yearly earnings fall below the predetermined level for the current tax year, even though there were occasions where the repayment was a legal deduction at that time. The refund will be dealt with by the Student Loans Company upon application by the employee.
Stopping the deduction
There are few circumstances under which the repayments can be stopped.
- The employee leaves your employment. The repayment is still taken from any payments made after leaving on and up to the issuing of the P45. The P45 must have the 'Continue Student Loans deductions' box (5) marked with a 'Y'.
- HMRC issue you with a stop notice. There will be a date after which no further deductions can be made. Following receipt of a stop notice and upon the employee leaving box 5 on the P45 is left blank.
- Instructions are received to start deducting either ISDN, CTAEO, CCAEO attachments or Scottish Earnings Arrest court orders.
- The employee reaches 65 years old. The loan is then written off.
- The employee dies.
If the employee disputes the deduction or asks you to stop making it for any reason, they must be informed that you are not allowed to stop taking it and could be prosecuted if you did and that any representations must be made to the Student Loans Company.
What happens to the money collected
The scheme is administered by the Student Loans Company, which is run by the government, and the money is collected on their behalf by HMRC.
Payment of employer collections is made along with your tax and NI either monthly or quarterly as you would normally do it. The total of Student Loan repayments are added to the tax content of the payment. Student loan deductions form part of the calculation that determines funding for SSP etc.
Compliance and enforcement
The amount of student loan deductions has to be listed separately on P14, 60 and 35 end of year forms and the amount due to HMRC has to accurately reflect the amount of deductions made. A complete set of records supporting the deductions has to be kept for at least three years after the tax year end.
If a business is found to be failing in its duty to administer student loan deductions they will be encouraged to comply and the rectify the non-compliance. However, there are hefty fines of up to £3000 per employee irregularity or falsification of records that can be levied. As ever, ignorance of the rules is no excuse.
Due to the complexity of the order in which deductions from wages have to be made and some differences in the treatment of student loan repayments the information contained on this page should only be used as a subject overview. Some of the terms we have used when describing priority and protected earnings have been generalised.
