Student Loan Scotland – This page explains how student loan payments can be deducted through the Pay As You Earn (PAYE) system if you have income-based student loans Plan 1, Plan 2 or Plan 4.
If you are going to work abroad and are not part of the UK tax system, you will need to make payment arrangements directly with the Student Loans Company (SLC).
Student Loan Scotland
Your employer is usually responsible for taking student loan payments out of your pay via PAYE. Your paycheck will usually have an entry labeled “student loan,” but it won’t show how the payment was calculated. Your employer will pay the fee to HM Revenue & Customs (HMRC), who will pay it to the SLC. SLC will then display the new loan balance in the borrower’s account, but it may take some time to update to show the correct position.
Repaying More Than One Student Loan
If you are close to paying off your loan, you can sometimes ‘opt out’ of PAYE and arrange a direct payment to SLC. This is explained in the following topic: Opting out of receiving Plan 1, Plan 2 and Plan 4 PAYE payments.
If you work at the beginning of the tax year in which you have to start making payments, the SLC must notify HMRC. HMRC will then issue a ‘Notice of Commencement’ to your employer who will then calculate your student loan deduction with tax and national insurance contributions and pay it to HMRC via the PAYE system.
When you start work, as part of the new start checklist (formerly form P46), your employer will need to ask you if you have any student loans that you want to start repaying. Your employer will also ask you what kind of credit you have. It is important to provide the correct information because this will affect the repayment of the given loan. We provide an example of a prepayment checklist to help explain how to answer the questions so that you can make the correct loan payments.
If you believe your deductions were taken using the wrong student loan plan, you should first check with your company what plan you used for student loan deductions. If you think this is an error, we recommend you check your plan type with SLC. You must inform your supervisor of the student’s exact plans. HMRC will also check that employers are making student loan repayments using the correct type of plan and ask them to make changes if the wrong type of plan is used.
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Under the PAYE system, the actual loan repayment process is time-based – we’ll look at some examples below. They’ll be the same whether you have a Plan 1, Plan 2 or Plan 4 student loan.
Jan left university in the summer of 2023 and immediately got a job. As he did not have a P45, the employer requested information to complete the new departure list.
Although Jan has an income-based student loan, he did not complete his coursework before April 6, so the employer is not required to begin deducting loan payments in the 2023/24 tax year, even if Jan’s income exceeds the payment limit.
But from April 2024, HMRC will have to give employers “first notice” and start denying loans if Jann earns more than the payment threshold.
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Francesca has an income-based student loan. In the year He left university in the summer of 2023 but was unable to find work immediately.
He got a job in May 2024 and the employer requested information to complete a new departure checklist. If she leaves school before 6 April 2024, if Francesca’s income is sufficient, her employer will have to reduce her salary immediately.
Your income for student loan servicing is calculated in the same way as National Insurance Contributions (NICs). This figure is not always equal to your taxable income. For example, NICs may not be paid from your employer’s loan and tips may not be paid for NICs. You can find an alphabetical guide to tax and NICs on benefits in kind on GOV.UK.
Any employment income earned before the date you start making payments should not be taken into account when calculating the amount you owe.
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Pension contributions normally made through your company’s salary are deducted from your salary for income tax purposes, but do not reduce your salary for Betuah Leumi service and are therefore included in the student loan repayment calculation.
Taxable income from the pension you receive is considered earned income, not earned, so this could affect the amount you pay on your student loans if you file a self-assessment tax return.
Plan 1, Plan 2 and Plan 4 payments are made at 9% of income above the student loan plan repayment limit.
Each payment date is displayed separately. Your payments may vary depending on how much you pay per week or month. If your income is below the threshold at the beginning of the week or month, your employer cannot make a deduction.
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In short, your employer calculates and deducts your payments each payday. You can claim a refund on your annual income only if your income for the tax year is less than the repayment limit of the loan plan. We explain more about refunds at the bottom of this page.
The example below shows how your payment will be calculated depending on whether you have a Plan 1, Plan 2 or Plan 4 loan.We have further guidance if you are paying off more than one loan.
Jack is paid every month. Your employer has been given an HMRC ‘notice’ from 6 April 2024 to start reducing your package 1 student loan repayments if your income is above the allowable threshold: £24,990 a year, which is £2,082, 50 a month.
Jack’s basic salary is £24,000 a year or £2,000 a month, but the summer months are busy so he has to work part-time. In July she received an extra £450 and found out that her payments had been stopped due to student loan repayments. He asked how it was calculated and why he had to pay.
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The employer stated that his total salary for the month of July was £2,450, which is £367.50 above the monthly repayment limit of £2,082.50. This £367.50 is multiplied by 9% to reduce student loans by £33.07.
Patrick is paid monthly. Your employer has received an ‘advance notice’ from HMRC to start deducting your Package 2 student loan repayments from 6 April 2024 if your income is above the allowable limit: £27,295 a year, which is £2,275 a month.
Patrick’s basic salary is £21,000 a year or £1,750 a month, but he has to work part-time because of the busy summer months. In July he earned an extra £800 and found out his pay had been cut to pay off student loans. He asked how it was calculated and why he had to pay.
The employer stated that his total salary for July was £2,550, which was £275 more than the monthly loan repayment limit of £2,275. This £275 student loan relief is multiplied by 9% to give £24.75.
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Lakhbir finished university in 2015 and is repaying his student loans under Package 1. He currently earns £33,000 a year (£2,750 a month) and has been told his student loan repayments will move from Package 1 to Package 4 from April. 2021.
Lakbir’s student loan repayments will be deducted directly from his salary if he earns more than the Scheme 4 payment threshold: £31,395 a year or £2,616 a month for the 2024/25 tax year.
At the end of April 2024, Lakhbir checked his payslip and saw a ‘student loan’ deduction of £12.06. This is calculated as Lakbir’s gross salary (before tax and NIC) of £2,750 minus the monthly payment threshold of £2,616 x payment rate (9%).
Later, when Lakhbir checked the borrower’s account with SLC, he saw that this deduction had been deducted from the existing balance.
Student Loan Or Student Tax?
So, as you can see from the example above, student loan deductions are calculated based on the “payment period.” This is how National Insurance Contributions (NICs) are calculated. In most cases, this is from week to week or month to month, depending on how often you get paid.
This means your employer can’t count any “fringe benefits” against your loan plan’s annual repayment limit and won’t be able to pay them next month if your salary is below the threshold.
If your income fluctuates and your salary varies between pay periods, this may result in multiple pay periods where you are over the salary limit and
