After thousands of taxpayers over repaid their student loans due to the PAYE system, HMRC say their new procedure will help to avoid this.
The official statistics show that every year around 1.5 million people borrow money through the Student Loans Company (SLC). The majority of this 1.5 million go into employment and then begin paying off their debt through the PAYE System because of loan repayments taken directly from their salary. However, once the loan has been fully repaid, one problem is that there is not a clear process in place to stop future payroll deductions.
HMRC have announced a new procedure, whereby this change should help prevent over repayments of student loans from occurring through PAYE, or at least, at the bare minimum, prevent them from getting out of hand. Going forward, the SLC will now have to notify HMRC when a student’s loan has been repaid in full. From there, HMRC will then notify you to stop making the deductions.
Although the effort to address this issue and launch the new procedure is good news, one downside is that there is a chance that two or maybe even more paydays will pass by before you were to receive a notification from HMRC which would result in some over repayment. These payments cannot be refunded through the PAYE system.
In most cases, the SLC will refund over repayments automatically, however it may take time for this to happen because employees must wait until the end of the tax year in which the debt was cleared. For example, if your employee has cleared their student loan in August 2024, the refund won’t begin to be considered by the SLC until after 5 April 2025, and the reality is that it will take weeks or months before your employee will see their money refunded. In this scenario, it is advisable for them to submit a claim for a refund with SLC as soon as possible to minimise the delay in receiving their refund.
HMRC have also updated their guidance for taxpayers who have student loans to provide further information about what will happen once their loan has been repaid in full.
To discuss your PAYE requirements, please contact SFB Group’s payroll team on 03333 444 171 or email enquiries@sfb.group.
