Plan 1 loans: How do Pay As You Earn (PAYE) student loan repayments work?
If you are employed at the beginning of the tax year in which you are due to start making repayments, the Student Loans Company (SLC) should notify HMRC. HMRC in turn issue a ‘start notice’ to your employer who will then calculate student loan deductions along with your tax and NICs and pay them to HMRC through the PAYE system.
But when you start a job, as part of their new starter checklist (previously known as Form P46), your employer should ask you whether you have a student loan on which you are due to start making repayments. Your employer will also ask what type of loan you have, it is important that you provide the correct information as this will affect what loan repayments you make.
The exact process depends on timing – let us look at a couple of examples.
Example 1 – Jann, new starter employee
Jann left university in the summer of 2017 and got a job straight away. He had no P45 so his employer asked for information to complete the new starter checklist.
Although Jann has a Plan 1 income-contingent student loan, he didn’t leave his course before last 6 April, so his employer was not required to start deducting loan repayments even if Jann was earning over the repayment threshold.
But from April 2018, HMRC should issue a ‘start notice’ to his employer and if Jann is earning more than the threshold, loan deductions will begin.
So, let's illustrate how this works:
Example 2 – Francesca
Francesca, who also has a Plan 1 income-contingent student loan, leaves university at the same time as Jann, in the summer of 2017 but cannot find work straight away.
She finds a job at last in May 2018 and her employer requests information to complete a new starter checklist. Unlike Jann, because she left her course before 6 April 2018, if Francesca's income is high enough, her employer will have to start making deductions from her pay immediately.