STUDENT LOANS - 15.10.2020

Another student loan plan type

Background

On 9 June 2018 Scotland’s First Minister announced that Scotland would raise its student loan earnings threshold to £25,000 from April 2021. This will be for new and existing borrowers and the repayment period will also be reduced to 30 years from 35 (in line with England and Wales). At the moment Scottish borrowers have Plan 1 student loans along with repayers from England and Wales who took out their loans pre-September 2012. The increase in the threshold therefore necessitates splitting out the Scottish borrowers into a new plan type which will be known as Plan 4.

Calculation

The calculation of a Plan 4 loan will be as for Plans 1 and 2, i.e. undergraduate loan types, where repayments are calculated at 9% of any NIable earnings above the £25,000 threshold. Repayments will be reported to HMRC via the FPS and Plan 4 will be reported in data item 192 in the FPS.

Notification

For new employees beginning employment from April 2021 employers will be notified of Plan 4 being appropriate by the completion of an updated new starter checklist which will be brought into use.

Pro advice. It’s vital that all new employees complete a starter checklist in order that the correct plan type, or types, are allocated to their payroll record.

Pro advice. If an employee simply provides a P45 and doesn’t complete a starter checklist it remains the case that you should set them up as Plan 1, i.e. the loan plan with the lowest earnings threshold and then the Student Loans Company will inform HMRC to issue an SL1 notice to switch the employee to the correct plan type.

Migration

500,000 Scottish borrowers will need to be moved from Plan 1 to the new Plan 4 in time for deductions to begin in April 2021. This will be achieved by issuing an SL1 “switch” notice to employers during the first week of March. These notices should be set up to take effect from April 2021. At the same time 500,000 new repayer notices will be issued for Plans 1 and 2 and postgraduate loans. These will be for repayers who have graduated since April 2020 or finished/dropped out of a course since the start of the last tax year. It is possible, though unlikely, that an employee could have all three undergraduate student loan plans if they have lived in different parts of the United Kingdom when they have undertaken undergraduate studies.

Online repayment service

Repayers will now be able to see their student loan balance and information about their loan through a new online service. This allows them to: view and print a copy of their annual statement; see an up-to-date balance summary for the current tax year; find out their loan interest rate; and update their personal details.

The up-to-date balance summary will now show information from current FPSs that have been sent by employers. This information is now passed to the Student Loans Company on a weekly basis by HMRC. This reduces interest payments as the repayments are applied to the loan account much more quickly than previously. Paper statements will no longer be issued unless the student opts back into them.