Definition
Deductions made through payroll to repay student loans issued by the Student Loans Company. Employers are notified by HMRC to begin deductions when an employee's earnings exceed the relevant repayment threshold, and deductions continue until the loan is repaid or written off.
UK Context
HMRC issues an SL1 or SL2 start notice to employers via the tax code or a direct notice. Repayment rates and thresholds vary by plan type. Plan 1 (pre-2012 loans): 9% on earnings above 24,990 pounds per year. Plan 2 (post-2012): 9% above 27,295 pounds. Plan 4 (Scottish): 9% above 27,660 pounds. Plan 5 (post-2023): 9% above 25,000 pounds. Postgraduate loans: 6% above 21,000 pounds.
Best Practices
- Apply student loan deductions from the correct start date indicated by HMRC and use the correct plan type
- Ensure payroll software handles multiple concurrent student loan and postgraduate loan deductions correctly
- Do not stop deductions unless instructed by HMRC, even if the employee claims their loan is repaid
Frequently Asked Questions
How does an employer know when to start student loan deductions?
HMRC notifies the employer to start deductions through the employee's tax code (which will include a student loan indicator) or through a direct SL1/SL2 notice. The employer should also check the starter checklist completed by new employees for student loan information.
Can an employee ask the employer to stop student loan deductions?
No, the employer must continue making deductions until HMRC issues a stop notice (SL2). If the employee believes their loan is fully repaid, they should contact the Student Loans Company, who will then notify HMRC to issue the stop notice.