Student Loans, Self-Assessment and Payrolled Benefits

Everyone knows that the Student Loan deduction is made with reference to an employee’s pay subject to National Insurance Contributions:?

• The Education (Student Loans) (Repayment) Regulations 2009 state this
• HMRC’s guidance to software developers state this
• HMRC Collection of Student Loans Manual states this

Indeed, HMRC’s Manual suggests as an answer to the query ‘what income is included for SL purposes?’ the response ‘For student loan and or postgraduate loan purposes only include earnings as you would calculate for employer’s secondary Class 1 NIC purposes.? This will exclude most benefits in kind.’?

It is simple.?

The overriding rules about the income on which Student Loan repayments are calculated are the same regardless of whether the borrower repays via the payroll (PAYE), Self-Assessment only or a mix of the two as is common.

The Taxes Management Act 1970 states that HMRC ‘shall be responsible for the collection and management’ of Student Loan deductions and they are to be regarded as if they were other taxes such as Income Tax or Corporation Tax.?

So, it is, perhaps, surprising to read September 2023’s Agent Update and the section ‘Self Assessment student loan deductions and benefits in kind’? (you will have to scroll through the Update as the hyperlink does not work).??

When you get to it, this section says that for borrowers in Self-Assessment (not PAYE), HMRC have been using the annual taxable pay to calculate the Student Loan repayment that must be made.? This is incredulous because, as we know, the pay on which Income Tax is calculated is not and never has been the same pay used for the calculation of National Insurance and, therefore, Student Loans.?

The borrowers in Self-Assessment that may have been affected are those where the income declared by the employer has been inflated (for Income Tax) because they are payrolling benefits-in-kind.? There is no Class 1 NICs liability on benefits-in-kind (though there is a Class 1A liability).

HMRC are taking two actions with regards the Student Loan overpayments that they may have calculated incorrectly as a result of their error:?

1. They are writing to borrowers who may have been affected to give them the option of a refund or to leave the overpayment which reduces their outstanding balance
2. They are working to correct their systems so that payrolled benefits are entered as a separate value to other income subject to Income Tax.? Yet, they have this information already – see below

There are many borrowers who have the Self-Assessment returns completed by bookkeepers or accountants.? So, where returns have been completed by these professionals, be aware you have not done anything incorrectly.? It’s HMRC that have made the error.?

For tax returns for 2022/23 (first deadline 31 October 2023), HMRC advise the following workarounds.? There is no requirement to amend any previous returns that have been submitted but there is more administration required:

If the return is completed online:?

1. Deduct the value of payrolled benefits in kind from the total PAYE income for the tax year (as per the P60).? Note that the guidance says ‘your employer can provide the figures if you are unsure’!
2. At section 4, ‘Fill in your return’ and the part ‘Income from your employer’, enter the value of PAYE income LESS payrolled benefits in kind into the ‘pay from employer’ (box employment 03).? Note that the guidance calls this ‘income for your employer’, not ‘from’
3. Select ‘yes’ in the part that asks if taxable benefits have been received from the employer
4. In the next section (employment) , enter the payrolled benefits in kind figure in the ’other benefits’ box
5. In the ‘additional information’ box, enter the text ‘I have entered my payrolled benefits in kind in the ‘other benefits’ section as I’m a student loan borrower’?

If the return is completed on paper:?

1. As above, deduct the value of payrolled benefits in kind from the total PAYE income for the tax year (as per the P60).? Again, the guidance says ‘your employer can provide the figures if you are unsure’!
2. On the employment page , in box 1, enter the value of PAYE income LESS payrolled benefits in kind in ‘pay from this employment’ box
3. In box 15, ‘other benefits (including interest-free and low interest loans)’, enter the payrolled benefits in kind value
4. On the main SA100 form, on the last page before the declaration (TR7), in box 19 ‘any other information’, write ‘Figure entered in box 15 relates to my payrolled benefits in kind as I am a student loan borrower’

Hopefully, HMRC will find a way to use information they already have for future tax years rather than use taxpayer monies to come up with another way of obtaining the same information.

There are some thoughts that come to mind, not all of them can be written down.? Although, I am glad that HMRC have been honest and open about their error.

Payrolling benefits has only been with us since tax year 2016/17 so, maybe, it is understandable that one part of HMRC is 7 years behind!

The guidance ?‘Tell HMRC about a student or postgraduate loan in your tax return ’ updated on 19 September 2023 admits that ‘currently’, their system is unable to tell the difference between income subject to Income Tax and that part of income which comprises the value of payrolled benefits.?

Yet, HMRC tell us in their data items grid to use data item 60 in the Full Payment Submission (FPS) to identify the value of payrolled benefits. ?This is so that the Universal Credit is not impacted by the value of benefits that have been payrolled.?

The point is, though, HMRC do have this information and it shows how one part of the UK’s tax collection agency does not work in tandem with another part.

The above 1970 legislation is the one that originally gave HMRC the power to impose penalties for late or incorrect returns and payments.??

Whilst it imposes a power on HMRC to collect and manage Student Loans, I suppose there is nothing to say they must do it accurately!

The outdated Collection of Student Loans Manual talks about overpayments and how this is an automatic check.? This is in line with the Student Loans Company’s obligation with HMRC to ‘manage the full end-to-end apply, assess, pay and repay’ process.??

Again, there is nothing in their list of responsibilities that says they must get it right. Though there are obligations to ‘provide a service designed to meet the needs of the customer’ and ‘use technology and enhanced business processes’ all with the aim of satisfaction and customer service.?

HMRC say that they will be writing to the borrower who may have overpaid. Yet the above manual says it will be the Student Loans Company who will write after they have checked with HMRC that there are no other outstanding Self-Assessment liabilities.

I’m not sure what else there is to say except to bring this fiasco to a close:?

• This ONLY affects borrowers in Self-Assessment who have an outstanding Student Loan balance (Plans 1, 2, 3 or 4) and where taxable income is inflated as a result of payrolling of benefits in kind
• It is HMRC’s systems that are in error, not anything that has been done by the employer, borrower or someone assisting with completion of the tax return, though
• This workaround may affect employers, borrowers, bookkeepers, accountants – basically, anyone that is totally innocent and operating as we have been told for years
• There is a workaround for 2022/23 returns until HMRC fix their system and use information they already ask for