Day to day PAYE
In this section:
Calculating student loan deductions
Students in higher education in the UK can get loans to help with their expenses while they're studying. The Student Loans Company makes the loans but HM Revenue & Customs (HMRC) collects the repayments.
Students start repaying their loan once they've left higher education and their income is more than a certain amount - the threshold. If their income is high enough, their repayments start in the April after they leave higher education.
The income threshold for starting to make repayments is £15,000 a year (£1,250 a month or £288 a week). Once an employee's income goes over the threshold, you deduct 9 per cent of their income that's over the threshold towards repaying their loan.
We collect the repayments along with your employer PAYE (Pay As You Earn) deductions.
On this page:
- Your responsibilities as an employer
- When to start making student loan deductions
- How to calculate the student loan deduction
- When to stop making student loan deductions
- Student loan deductions - special cases
- Student loan deductions - employee working abroad
- Student loan deduction errors
- Student loan deductions - make it easy
- More useful links
Your responsibilities as an employer
As an employer, you're responsible for:
- deducting student loan repayments from an employee's earnings
- recording the deductions (column 1j of form P11 Deductions Working Sheet)
- paying the deductions over to HMRC
- providing us with details of the deductions at the end of the tax year
- giving details of the deductions on your employee's payslip
- showing that the employee's liable to make student loan repayments on their form P45 Details of employee when leaving work when they leave
You're not responsible for:
- deciding that employees have to make student loan repayments
- handling employees' queries about their loan, tell them to contact the Student Loans Company on Tel 0870 240 6298
When to start making student loan deductions
You should only start making student loan deductions if:
- we send you form SL1 Start Notice and the employee's total pay exceeds the student loan threshold
- your new employee gives you form P45 with 'Y' in the Continue Student Loan Deductions box (box 5)
- your new employee gives you form P46 Employee without a form P45 with a tick in box D (Student Loans)
Receiving form SL1
If you receive a form SL1 it will give you a start date for making student loan deductions. You must start making deductions on the first available payday on or after that date.
If we send you form SL1 for someone you're already making student loan deductions for, perhaps because they ticked box D on their P46, carry on making the deductions and file keep form SL1 on file.
If you receive form SL1 for someone who's left
We might send you form SL1 after an employee's stopped working for you. If you've already filled in their P45 all you need do is:
- send us the P45 if you haven't already
- keep form SL1 on file
If you haven't yet filled in form P45 then do so, putting 'Y' in the box headed Continue Student Loan Deductions. Then follow the usual P45 procedures and file away form SL1.
If you receive form SL1 for someone you've never employed
Tell us if you get form SL1 for someone you've never employed and we'll look into it. Keep the form on file and we'll let you know if you need to do anything more.
If you receive form SL1 for someone who claims they never had a student loan
If you get form SL1 for someone who says they've never had a student loan, start making deductions and carry on until we tell you not to.
How to calculate the student loan deduction
How you go about this will depend on whether you operate payroll using software or manually. Using payroll software is quick and easy and reduces error.
If you use commercial payroll software
Commercial payroll software will usually calculate any student loan deductions automatically, along with PAYE and National Insurance contributions (NICs) deductions. Simply follow the software instructions.
If you use our free P11 Calculator
If you use HMRC's free P11 Calculator to work out PAYE, from April 2008 it will also automatically work out your student loan deductions for you.
In the employee database you simply follow the instructions for indicating that student loan deductions need to be made.
You can do this either:
- when entering the employee's details for the first time
- by amending their details after we send you form SL1
- by amending details of an existing employee already set up for whom you currently add student loan deductions separately
Once you've entered the details, it'll make deductions automatically for each pay period - there's no need to use the separate Student Loan Calculator on the Employer CD-Rom.
If you complete a paper form P11
If you complete the paper form P11 we recommend that you use our Student Loan Calculator on the Employer CD-Rom. This will work out the deduction automatically and prevent error. You then record the deduction in column 1j on form P11.
If your employee's annual pay is no more than the upper earnings limit of £60,060 (£1,155 a week or £5,005 a month) you can use the student loan tables to work out the deduction. However this method is more time consuming and more prone to error than using the calculator.
You'll need to:
- decide which table to use - weekly or monthly
- look up the amount of earnings in the week or month to find the corresponding student loan deduction
If the exact figure isn't shown, look for the nearest figure below and use the amount of student loan deduction shown for that range of earnings.
You can't use the Student Loan Deduction Tables to work out the deduction if your employee's annual pay is more than the upper earnings limit. Instead, you can:
- use the P11 Calculator
- use the Student Loan Calculator
- work out the deduction yourself
There's an example of how to make the calculation yourself in helpbook E17, 'Collection of Student Loans'. Working out the deduction yourself is more difficult and time consuming.
You'll find both the calculator and the tables on the Employer CD-Rom. Make sure you're using the latest copies of these.
You can order the tables and CD-Rom online or through our Employer Orderline on Tel 08457 646 646 or textphone 0800 959 598, open from 8.00 am to 8.00 pm, Monday to Friday and from 10.00 am to 1.00 pm, Saturdays except Christmas Day, Boxing Days and New Year's Day. You can also View the tables below.
Find the Student Loan deduction tables (PDF 33K)
Order the Employer CD-Rom or Student Loan deduction tables online or by phone
view helpbook E17 Collection of Student Loans (PDF 248K)
When to stop making student loan deductions
There are only three reasons to stop making student loan deductions:
- if we send you form SL2 Stop Notice
- if we write to ask you to stop making deductions - if we ask over the phone, we'll always write to confirm
- if you're an educational institution or local education authority in England or Wales and the teacher gives you a letter from the Student Loans Company telling you to stop making deductions because they've joined the Repayment of Teachers Loan Scheme
If you receive form SL2 Stop Notice it will show a stop date. You must stop making deductions on the first available payday on or after that date.
Don't stop making deductions just because your employee asks you to. If they think you shouldn't be making deductions they should contact the Student Loans Company on Tel 0870 240 6298. Don't contact the Student Loans Company yourself - they won't give information to a third party.
Employees who have left
If the employee has left and you've completed a P45, just file away the SL1 Stop Notice. If you haven't completed a P45 then do so, leaving the box 'Continue Student Loan Deductions' blank. There's a flowchart in helpbook E17, 'Collection of Student Loans' which will help you follow the right procedure.
View helpbook E17 Collection of Student Loans (PDF 248K)
Student loan deductions - special cases
There are some situations you need to be aware of that can affect the way you'll calculate the deduction. These are:
- court orders - you'll need to know the order of deductions based on their priority
- payments after an employee dies - make no deductions from payments made after their death
- payments after an employee leaves - use the same earnings period as for NICs
- the employee has more than one job - ignore earnings from another employer
- holiday pay - use the same basis as for NICs
- change of pay interval - adjust for the new earnings period
You'll find more information in helpbook E17, 'Collection of Student Loans'.
Download helpbook E17 Collection of Student Loans (PDF 248K)
Student loan deductions - employee working abroad
If you keep paying an employee while they work abroad you should continue making deductions. You'll find more information about working abroad in the Frequently Asked Questions (FAQs) section on our website.
Get answers to FAQs about student loan repayments when working abroad
Student loan deduction errors
If you deduct the wrong amount, the action you'll need to take depends on whether you can correct the situation during the current tax year.
For mistakes in the current year, repay an over deduction or collect an under deduction if you can do so in the current year. Otherwise, contact the Employer Helpline on Tel 08457 143 143, open from 8.00 am to 8.00 pm, Monday to Friday and from 8.00 am to 5.00 pm, Saturdays and Sundays, except Christmas Day, Boxing Day and New Year's Day.
For mistakes made in an earlier year:
- if you've sent in form P35 Employer Annual Return, tell the employee to let their Tax Office know about an over deduction, and to let the Student Loans Company know about an under deduction
- if you haven't sent in your P35, take no further action to recover an under deduction but repay an over deduction and amend your records
Student loan deductions - make it easy
You'll find that using approved payroll software or our P11 Calculator on the Employer CD-Rom will save you time and always give more accurate results than using paper methods. Using software will also help you meet the deadlines for all employers to file end of year returns online. If you have 50 or more employees you must file forms P14 End of year summary and P35 online now. If you have fewer than 50 employees, you do not have to file online until as least 2010 but you can get a tax-free payment for filing online before then. There are separate deadlines for sending forms P45/P46 online.
More about employer deadlines and incentives for online filing
Find out about commercial payroll software
How to use the Employer CD-Rom P11 Calculator to complete the form
More useful links
View a quick guide to the collection of student loans (PDF 58K)
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Find out how to deal with Statutory Paternity Pay
