HMRC revises employer fix for student-loan over-deductions

HMRC's Collection of Student Loans manual page on employer over-deduction of loan repayments (CSLM20020) has been revised in three operative respects. The changes concern excessive Student Loan and Postgraduate Loan deductions from a borrower's pay — for example where the deduction tables have been misunderstood — and sit alongside the standing cautions that deductions must follow the tables, that employers must not over-deduct so a borrower repays faster, and that where a stop notice has been received the employer must not refund, with the Student Loans Company making any refund due direct to the employeeGOV.

First, the correction of a typo aside, the in-year rule is unchanged in substance: where the error is found in year, or before the End of Year forms and final remittance reach HMRC and no stop notice has been received, the employer repays the employee (showing the repayment as a minus on the payslip) and adjusts the amounts paid to HMRC in the next Full Payment SummaryGOV. This mirrors regulation 54 of the Repayment Regulations, under which an employer that has overpaid HMRC reduces subsequent payments for the same tax year, and may do so for an over-deduction only if and to the extent it has reimbursed the employee.

Second, the after-year-end position has changed materially. The old text said HMRC or the Student Loans Company would make any repayment due direct to the borrower and the employer need do nothing furtherGOV. The new text removes HMRC as the repaying route: the employer does nothing furtherGOV, and if asked the employee should contact the Student Loans CompanyGOV.

Third, a new paragraph covers the intermediate case: where the employer has not yet submitted the End of Year forms for that year, it may repay the over-deducted amounts to the employee and amend the payroll records so the final FPS reflects the correct figuresGOV.

For payroll operators, the message is to correct over-deductions through the FPS route wherever the year remains open (in year, or End of Year forms not yet submitted)GOV, to leave closed-year cases to the Student Loans Company rather than expecting HMRC to repayGOV, and, where a stop notice has been received, to make no refund itself, leaving any refund due to be made by the Student Loans Company direct to the employeeGOV.

Legal basis: regulation 54 of the Education (Student Loans) (Repayment) Regulations 2009 (SI 2009/470) on payment of deducted repayments to HMRC and adjustment of overpayments, applied through the PAYE Full Payment Summary process.