16,000 individuals within Self-Assessment have overpaid their student loan contributions as a result of a failure of HMRC’s software to separately identify payrolled benefits.  

How much an individual needs to repay to the Student Loans Company (SLC) depends on the type(s) of loan(s) the individual is repaying and their earnings. Employees repaying a student loan will generally have the appropriate repayment for their plan deducted directly from their salary via their employer’s payroll. This is collected by HMRC, who then pay contributions to the SLC. Payroll software is generally able to correctly calculate the student loan repayments - as long as it is supplied with the correct details of the type of loan involved. 

Earnings for these purposes includes salary, bonuses and overtime, but does not generally include benefits in kind. Only benefits which are subject to Class 1 National Insurance Contributions (NICs) count as earnings for student loan repayment purposes. In practice, benefits such as cars or medical insurance are subject to Class 1A NICs while others, such as the provision of a mobile phone, are exempt. Only a few benefits, including some employment related securities or reimbursements of private expenditure, are liable to Class 1 NICs. 

For example, an individual with a salary of £40,000 and a car benefit valued at £5,000 has earnings for student loan purposes of £40,000. The car benefit counts for income tax, but is ignored for student loan deductions.  

Some employers chose to ‘payroll’ any benefits they provide – which means that any taxes due are collected through the payroll. The problem arises when an employee whose benefits are payrolled is also in Self-Assessment. Unlike payroll software, HMRC’s Self-Assessment system is not able to tell the difference between benefits in kind which count towards ‘income’ for the student loan deductions and those that don’t. In the example above, HMRC’s Self-Assessment calculator would incorrectly use £45,000 to calculate any student loan deductions.  

Those affected by this issue will be contacted directly by HMRC. They can either apply for a refund of any overpayments, or leave the extra payments to reduce the balance of their student loan and future interest charges.  

At some point the Self-Assessment return will be amended to allow those who have PAYE income and payrolled benefits to declare those benefits separately. In the meantime, HMRC has provided guidance on a temporary workaround, which you might want to share with any affected staff who come to you with queries.  

This article reflects the position at the date of publication (18 October 2023). If you are reading this at a later date you are advised to check that that position has not changed in the time since.    

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