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Students set to save with changes to student loan repayments

As part of an ongoing review of student finance, the Government has confirmed that student loan repayment thresholds will increase. The decision, many would say, is a clear attempt by the Conservatives to win the support of young people.

Buying some time with changes to student loan repayments

The planned changes effectively mean that thousands of graduates will soon be able to earn more before deductions are applied. This will buy low-earning graduates some time and potentially save them thousands of pounds during their lifetime.

Currently, students who took out their loan on or after 1 September 2012 (Plan 2) start to repay once yearly earnings exceed £21,000. Student loan repayments are equal to 9% of any income above the threshold. It is yet to be confirmed if this will remain the same under the new rules. However, from 6 April 2018, the threshold for Plan 2 students will increase from £21,000 to £25,000 for the 2018-19 financial year.

The changes will apply to all student loans taken out under the post-2012 system; both current and future borrowers for whom employers make deductions. Included within this are also those students who took out an advanced learner loan for a further education (FE) course. It is estimated that the £4,000 increase will benefit some 600,000 borrowers in total.

For Plan 1 students, who took out their loan before 1 September 2012, the threshold will increase from £17,775 to £18,330.

Where to start if you’re an employer…

If you’re an employer and unsure of the plan type applying to any employee, approach the individual and ask if they can supply the necessary information. Employees can check their details here.

If your employee cannot provide the relevant detail, make deductions at the first available pay date under Plan 1. You must continue to do so until HMRC instruct you otherwise.

Further information about how and when to make deductions, as an employer, can be found on the HMRC website here.

If you’re concerned about complying with the latest payroll rules and regulations, or if you’re considering outsourcing your payroll function, get in touch with one of our team today on 01767 315010, or email biggleswade@georgehay.co.uk

 

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