CSLM16030 – SL repayments: calculation of loan repayments: how are repayments calculated?

Simple calculation

The simple calculation of Student Loan repayments is

• Borrower's income

Less threshold

Balance (income less threshold) X rate = Student Loans repayments for the year

However, the following points should be noted

Income

1. Employment income - The amount of income to include for Student Loan repayment purposes is the earnings liable to NICs. (Not income liable to tax). This requires particular attention when the borrower receives benefits and / or expenses
   
2. Trading income - In calculating the income for the tax year the following should be excluded

In cases of difficulty refer the matter to your manager

Threshold

Where the repayments are calculated on total income for the year, for example where the borrower is self employed, there is no problem with the threshold. However, where a borrower is liable to PAYE then each pay period has to be looked at in isolation by the employer and the threshold is the pro rata amount of the annual threshold that relates to that pay period.

For weekly or monthly paid borrowers the appropriate pro rata thresholds can be found in the Student Loan Deduction Tables available from the Employer Orderline or on the Employer CD-ROM.

Apparent inconsistencies can arise if irregular amounts, such as bonuses, are paid in certain pay periods. This is brought to your attention in case queries are received.

The following examples assume an annual threshold of £15,000 and a rate of 9 per cent.

Example 1

Borrower receives a salary of £13,400 paid monthly. In March a £3,000 bonus is paid

You may expect the borrower to repay £126 Student Loan repayments for the year (£16,400 - £15,000) X 9 per cent.

However, the actual position will be

Months April - February - Salary £1116 per month, therefore NIL deductions because the income is below the monthly threshold

Month of March - Salary + bonus = £4,116. Therefore deductions = £257 (per Student Loan Deduction Tables)

The figure of £257 is payable under Part IV of the Regulations and no repayment is due to the borrower because

• The employer has correctly deducted the amount in accordance with the Regulations

And

• The borrower's income for the year exceeds the threshold

Example 2

Borrower receives a salary of £11,400 paid monthly. In March a £3,000 bonus is paid

You may expect the borrower to repay £NIL Student Loan repayments for the year because total income was less than the £15,000 threshold

However, the actual position will be

Months April - February - Salary £950 per month, therefore NIL deductions because the income is below the monthly threshold

Month of March - Salary + bonus = £3,950. Therefore deductions = £243 (per Student Loan Deduction Tables)

Although the employer has deducted repayments correctly, the borrower's income for the year does not exceed the threshold. In these circumstances the borrower may claim repayment from the Student Loans Company.