Employers diligently process Student Loan Deductions (SLDs) in real time, as instructed by HMRC. Employers and HMRC handle over 80% of SLDs, the remainder being paid by payments directly to SLC. However, HMRC and the Student Loans Company (SLC) only exchange information about these deductions after the end of each tax year. SLC do not apply interest to outstanding balances until after they have received the amounts so individuals are not disadvantaged by the exchange of date that is not in real time.
There has long been a discussion as to whether this lack of real-time reporting and 20th century process is leading to overpayments of Student Loans.
Why does it happen?
In oral evidence to the Treasury Select Committee in September 2017, CEO Jon Thompson said that HMRC had the ability to pass the information over to the SLC on a more frequent basis. However, he queried whether the SLC were able to process it (‘ingest’ it).
In short, HMRC can do it but SLC cannot process the information. Although, HMRC do not seem to be passing over the information as soon as the tax year finishes, with their target for 2017/18 data being only 92% of information by 31 July 2018.
On 21 May 2018, Peter Dowd, MP for Bootle, asked the Secretary of State for Education how much interest accrued on Student Loans for which salary deductions have already been made. The answer to this is that interest is only applied after the end of the tax year when SLC process the data, as above.
The 29 May 2018 response from Sam Gyimah, MP for East Surrey and Education Minister at the time said that:
The government is taking steps to develop systems to allow the sharing of student loan repayment information more frequently between HMRC and SLC from April 2019. This will allow for repayments to be credited and for interest calculations to be undertaken regularly throughout the year.
I cannot find anything that says the SLC have updated their IT infrastructure to allow data sharing in real time. I can see reference to improving IT processes between HMRC and SLC and maybe this was the issue all along.
Regardless, the Education (Student Loans) (Repayment) (Amendment) Regulations 2019 do 2 things which are important for employers and individuals to be aware of:
- They introduce and legislatively provide for ‘More Frequent Data Sharing’ (MFDS). This means that HMRC must provide the SLC Student Loan repayment information, as submitted by employers, on a weekly basis rather than an annual one. This applies for any SLD made from 06 April 2019 – i.e. from tax year 2019/20 onwards
- Where an employee has both an Undergraduate Plan 1 and 2 Student Loan, if the annual earnings are between the two thresholds, all repayments are allocated to Plan 1. Where the annual income reported via RTI is over the Plan 2 threshold, part of the SLD will reduce the Plan 1 debt with the remainder reducing the Plan 2 debt. As MFDS will mean the transfer of information more regularly, the Regulations provide that monthly thresholds will be used instead of annual ones
Although the Regulations apply to England and Wales, MFDS will apply UK-wide. The relevance to England and Wales and apportionment is relevant, as Plan 2 Undergraduate Student Loans only applies to borrowers from these countries.
The Implications for Employers?
Why does this matter to employers? Well, firstly, it is good to know what is going on with a deduction that we commonly make in the payroll.
Secondly, HMRC thought that it was worth mentioning in the February 2019 Employer Bulletin (page 4) as ‘some employees may ask you to check and confirm the information you have sent’.
More importantly, the fact that the SLC have the information on a more regular basis should enable them to know in-year when a Student Loan is nearing repayment. Possibly, this will mean that the SL2 / PGL2 Stop Notices do not appear from HMRC in a large influx when the SLC have processed the HMRC data after the end of the tax year. Maybe we will see them spread in a more timely fashion through the tax year.