Student loans are a government supported aid package to help students in the UK finance education. These loans will aid students in meeting expenses while studying.
The entity responsible for collecting the repayment of student loans for those in the UK tax system is HM Revenue & Customs. Student loans are distributed by the Student Loans Company, and HM Revenue & Customs is responsible for collecting the repayment of these loans. In most cases, the employer of the student collects repayments by making deductions from their pay.
The employer is responsible for:
- deduction of Student Loan repayments from said employee’s wage
- accurately recording the deductions made
- making payments of said deductions to HM Revenue & Customs
- at the end of the year, providing HM Revenue & Customs with the records of these deductions
- reporting deductions to the employee for each pay period
- utilising form P45 when employment ends, and alerting the former employee that they are liable for future repayments.
There is an annual threshold with respect to income for the repayment of student loans. This threshold is currently £15,000, below which Student Loan repayments are not due. The repayments that the employer will make for the student loans will calculated based on a proportion of the employees income appropriate to the pay period.
The rate of deduction when calculating the amount of Student Loan deduction is 9%.
The deductions for student loans are made on a non-cumulative basis. To properly deduct the correct amount from the employee’s wages, the employer must utilise the Student Loan Deduction Tables available on the HM Revenue & Customs website.