Deduct student loan and postgraduate loan repayments

You must deduct student loan and postgraduate loan repayments from an employee's pay through PAYE and pay them to HMRC with your PAYE bill. There are four student loan plans, numbered 1, 2, 4 and 5, and a separate postgraduate loan. An employee can repay one student loan plan and a postgraduate loan at the same time, and you deduct both.

Find out which plan applies

Ask the employee which loans they have. For a student loan they can check their plan in their online student loan account, and the Student Loans Company can help if they are unsure. If a P45 reaches you after the employee has started, ask them to confirm their plan or loan, then start on the next payday.

Work out each deduction

Payroll software or HMRC's deduction tables work out the threshold for the pay period. Ignore the pence in the result. For example, an employee on Plan 2 who is paid £3,000 for a month has £551.25 above the monthly threshold. 9% of that is £49.61, so you deduct £49.

Take Income Tax and National Insurance first. If the pay left is not enough, the repayment is whatever remains. If the employee also has a court order for deductions from earnings, the order in which you take the deductions depends on the type of order, so follow HMRC's guidance for employers.

Report and pay

Put each deduction, rounded down to a whole £, and the plan type on every Full Payment Submission (FPS). Pay the total to HMRC with your PAYE bill by the same dates, so late payment brings the same interest and penalties as late PAYE. Each employee's P60 shows the year's total. Keep the SL1, PGL1, SL2 and PGL2 notices and your calculations with your other payroll records.

When to stop deducting

Make no deductions from pay after an employee's death, from an occupational pension, or from payments covered by the off-payroll working rules. If an employee leaves, enter Y in box 5 of their P45 if deductions should continue, even if they have not earned enough to repay, and leave it blank if HMRC has told you to stop.

Correct a mistake

If you deduct too much in the current tax year, repay the employee and correct your year-to-date figures. If you deduct too little, collect the shortfall in later pay, adding no more than the amount due on that payday. If you cannot put either right, contact the HMRC employer helpline. Do not refund anything once you hold an SL2 or PGL2: the employee deals with the Student Loans Company.