Are you aware that your employer will deduct your student loan out of your salary once you meet the repayment threshold? Find out more by reading below.

What do I need to know?

There are three different types of student loans, which will be deducted from your salary by your employer if you meet the repayment threshold.

These are:

  • Post-graduate Loans
  • Plan 1 Student Loans
  • Plan 2 Student Loans

What are the repayment thresholds?

If your income exceeds the threshold for your type of student loan, then this will be deducted from your salary by your employer.

The thresholds for each loan repayments are:

  • Post-graduate Loan (PGL) – annual salary of £21,000
  • Plan 1 Student Loan – annual salary of £18,935
  • Plan 2 Student Loan – annual salary of £25,725

The repayments for Plan 1 and Plan 2 Student loans will be made at 9% on the income that is in excess of the threshold.

Repayments for Post-Graduate Loans are made at a rate of 6% on income that exceeds the threshold.

If you have both a student loan and a PGL then the deductions will be combined to 15% where income exceeds the threshold.

What do I need to know as an employer?

As an employer you should start to make deductions from your employees when:

  • The employer receives a SL1 Start notice from HMRC;
  • The employer receives a PGL1 start notice from HMRC or
  • The employer receives a Generic Notification Service Student Loan reminder
  • A new employee is taken on and has a ‘Y’ in the student loan box on their P45
  • A new employee tells the employer they are repaying a student loan
  • A new employer confirms on the starter checklist that they have a student loan.

Before you as an employer deduct student loan repayments from your employees salary, you should make sure you are aware of the type of loan that they have.

You should pay the student loan deductions, as well as tax and National Insurance over to HMRC before the 19th of each month if you are paying by cheque or before the 22nd of each month when the payment is made electronically.

How do I stop deductions?

Your employer will only stop taking deductions from your salary for your student loan repayment when they receive a SL2 stop notice or a PGL2 stop notice from HMRC. Employees will not be able to suspend or stop deductions themselves.

If HMRC issue a stop notice, then your employer should stop the deductions from the first payday which is suitable.

What if an employee leaves?

If an employee leaves your business, then you must make sure that you enter a ‘Y’ in box 5 of the P45. This will let the new employer know that they should take student loan deductions from the employee. Even if the employee’s income is below the repayment threshold you should still enter a ‘Y’.

You should not enter a ‘Y’ on the P45 if a stop notice has been received.

Further Actions

As an employer you must make sure that you are aware of your employees’ type of student loan and that you are deducing it from their salary if they meet the threshold. It is also important that you make sure that you pay the deductions to HMRC by the correct date each month.

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