Student loan thresholds set to rise from 6 April 2021

The thresholds for student loans will increase from the new tax year in April, affecting any employees paying off their academic fees, while interest rates remain at 9%

The government has also confirmed that the base interest rate will remain at 9%, significantly higher than the average loan interest currently available from commercial lenders.

The threshold for student loan Plan 1 increases to £19,895, and earnings above this threshold will continue to be calculated at 9% interest. This rises from £19,390 for 2020-21.

Plan 2 student loan threshold rises to £27,295, earnings above this threshold will continue to be calculated at 9%, up from £26,575.

The threshold for Scottish student loans, known as Plan 4 loans, starts at £25,000, with the same interest rate of 9% applied.

Postgraduate loan repayments start at £21,000, with earnings above this threshold continuing to be calculated at 6%.

The full details are set out in HMRC Student and postgraduate loan start notice (SL1/PGL1).

It is important that you:

  • check your client’s online account for student loan and or postgraduate loan start and stop notices, if the email or correspondence address has changed let HMRC know as soon as possible;
  • take the correct action to start student and or postgraduate loan (PGL) deductions as soon as possible; and
  • record the deductions correctly on the employee’s full payment submission.

This ensures that the employee does not pay any more or less than necessary.

If your client receives a student loan and or PGL start notice (SL1/PGL1) from HMRC, it is important that you:

  • use the correct loan/plan type; and
  • check the start date shown on the notice and take deductions from the next available pay day.

If the earnings are below the student loan and/or PGL thresholds, update the employee’s payroll record to show they have a student loan and/or PGL and file the start notice. Deductions should continue until HMRC tells your client to stop.

Student and postgraduate loans and off-payroll working rules

Organisations are not responsible for deducting student loan and or postgraduate loans (PGL) for workers engaged through their own companies.

The worker will account for student loan or PGL obligations in their own tax return.

Scottish student loans

As mentioned in Agent Update 81, the Scottish government is introducing a new plan type for Scottish student loan borrowers, known as Plan 4 from 6 April 2021.

This change will impact employers across the UK, not only those located in Scotland, it will be any employers who have employees paying back their loan from the Student Award Agency for Scotland (SAAS).

A separate stop notice, SL2 will not be issued for this change.

The new plan will be operated by employers in the same way as plan types 1 and 2. If you need to make student and or postgraduate loan deductions from 6 April 2021, you will need to know which plan or loan type to use. This could be Plan 1, Plan 2, Plan 4 and or PGL. An employee may repay Plan 1 or Plan 2 or Plan 4 and PGL at the same time.

The starter checklist has been updated to reflect this new plan type and will be available on www.gov.uk before of the start of the new tax year.

HMRC guidance will be updated to reflect the changes.

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