Ask the Expert: How do I prepare for the UK’s new post-graduate loan? Ask the Expert: How do I prepare for the UK’s new post-graduate loan?

Ask the Expert: How do I prepare for the UK’s new post-graduate loan?
01 Oct 2018

Q. When you answered a previous query about P45s and student loans, you mentioned that new post-graduate loans would be introduced from tax year 2019/20. What are these loans and what do I need to do to prepare for them?

Because my response takes us into the confusing world of devolution, I have broken it down into three sections. The first is to provide you with background, the second to show you how PGLs will work, and the third to offer practical advice on what you need to do in preparation.

  1. Background 

Post-graduate loans (PGLs) are funding products available in every country that makes up the UK. But PGLs that are issued in Northern Ireland or Scotland to students ordinarily resident in those countries will repay them as Plan One Loans based on the applicable threshold and a repayment rate of 9%.

PGLs are only identified as being separate from undergraduate loans (UGLs) when they are issued to students who are ordinarily resident in England or Wales. For these students, Plans One and Two are classed as UGLs based on the relevant threshold with repayments at 9%.

Students ordinarily resident in England and Wales must repay their PGL in the tax year following the one in which they left their studies. So, for example, a student that left university in July 2018 would not have to start repaying anything until April 2019. But a student that left in July 2017 would still have to repay their PGL from April 2018.

The difference between this scenario and the one due to be introduced in tax year 2019/20 is that if an ex-student is in employment, their repayments will in future be collected via the PAYE system rather than paid directly to the Student Loans Company. 

  1. How PGLs will work

The PGL is a totally different loan product in England and Wales than it is elsewhere. Here it has a threshold of £21,000 (US$27,401) per year and there is no provision in legislation for this sum to be amended annually. While this situation could change over time, it would be necessary to pass suitable legislation to make it a reality. Repayment levels are at 6% and payments must be made concurrently for both Plan One and Plan Two products.

So, for example, if someone has a Plan Two UGL and a PGL, repayments must be made at 6% on earnings over £21,000 annually. But the figure increases to 15% on earnings over £25,000 (US$32,618) as repayments for PGLs stand at 6% and for UGLs at 9%.

This raises the question of which deductions take priority if a former student has a Court Order with a protected earnings value because loan deductions could take them below the threshold. Guidance on the matter is awaited from Her Majesty’s Revenue & Customs (HMRC) – even if, in reality, PGL needs to be made a priority in legislative terms.

  1. How to prepare

There are three main things you need to do:

  1. Check your software: Ensure your payroll system upgrade for 2019/20 includes support for UGL and PGL student loans, which includes enabling them to be identified as separate entities in the software and declared separately via a Full Payment Submission. Please note that as P45s are not changing, no amendments need to be made there. The same may not be true of P60s though though;
  2. Get hold of a Starter Checklist when it comes out in April 2019: This Checklist will contain more questions than in the past as new employees will need to be asked ‘what type of Student Loan do you have?’ Given that they could have Plans One or Two and a PGL that must be repaid through payroll, the situation could initially prove confusing;  
  3. Evaluate your own checklist questions: Some employers have chosen to ask the ‘what type of Student Loan do you have?’ question on a new-starter form rather than give them a separate Starter Checklist. Such an approach is very sensible given that the P45 is not changing, and the only thing we know about the new staff member is that they have a student loan of some type carried over from their previous employment

 Ian Holloway

Ian Holloway is head of legislation and compliance at Cintra HR and Payroll Services. He was involved in processing payrolls large and small from organisations across all sectors until 2011 when he started helping to educate the profession by developing course material, newsletters and face-to-face presentations.

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Q. When you answered a previous query about P45s and student loans, you mentioned that new post-graduate loans would be introduced from tax year 2019/20. What are these loans and what do I need to do to prepare for them?

Because my response takes us into the confusing world of devolution, I have broken it down into three sections. The first is to provide you with background, the second to show you how PGLs will work, and the third to offer practical advice on what you need to do in preparation.

  1. Background 

Post-graduate loans (PGLs) are funding products available in every country that makes up the UK. But PGLs that are issued in Northern Ireland or Scotland to students ordinarily resident in those countries will repay them as Plan One Loans based on the applicable threshold and a repayment rate of 9%.

PGLs are only identified as being separate from undergraduate loans (UGLs) when they are issued to students who are ordinarily resident in England or Wales. For these students, Plans One and Two are classed as UGLs based on the relevant threshold with repayments at 9%.

Students ordinarily resident in England and Wales must repay their PGL in the tax year following the one in which they left their studies. So, for example, a student that left university in July 2018 would not have to start repaying anything until April 2019. But a student that left in July 2017 would still have to repay their PGL from April 2018.

The difference between this scenario and the one due to be introduced in tax year 2019/20 is that if an ex-student is in employment, their repayments will in future be collected via the PAYE system rather than paid directly to the Student Loans Company. 

  1. How PGLs will work

The PGL is a totally different loan product in England and Wales than it is elsewhere. Here it has a threshold of £21,000 (US$27,401) per year and there is no provision in legislation for this sum to be amended annually. While this situation could change over time, it would be necessary to pass suitable legislation to make it a reality. Repayment levels are at 6% and payments must be made concurrently for both Plan One and Plan Two products.

So, for example, if someone has a Plan Two UGL and a PGL, repayments must be made at 6% on earnings over £21,000 annually. But the figure increases to 15% on earnings over £25,000 (US$32,618) as repayments for PGLs stand at 6% and for UGLs at 9%.

This raises the question of which deductions take priority if a former student has a Court Order with a protected earnings value because loan deductions could take them below the threshold. Guidance on the matter is awaited from Her Majesty’s Revenue & Customs (HMRC) – even if, in reality, PGL needs to be made a priority in legislative terms.

  1. How to prepare

There are three main things you need to do:

  1. Check your software: Ensure your payroll system upgrade for 2019/20 includes support for UGL and PGL student loans, which includes enabling them to be identified as separate entities in the software and declared separately via a Full Payment Submission. Please note that as P45s are not changing, no amendments need to be made there. The same may not be true of P60s though though;
  2. Get hold of a Starter Checklist when it comes out in April 2019: This Checklist will contain more questions than in the past as new employees will need to be asked ‘what type of Student Loan do you have?’ Given that they could have Plans One or Two and a PGL that must be repaid through payroll, the situation could initially prove confusing;  
  3. Evaluate your own checklist questions: Some employers have chosen to ask the ‘what type of Student Loan do you have?’ question on a new-starter form rather than give them a separate Starter Checklist. Such an approach is very sensible given that the P45 is not changing, and the only thing we know about the new staff member is that they have a student loan of some type carried over from their previous employment

 Ian Holloway

Ian Holloway is head of legislation and compliance at Cintra HR and Payroll Services. He was involved in processing payrolls large and small from organisations across all sectors until 2011 when he started helping to educate the profession by developing course material, newsletters and face-to-face presentations.

 OTHER ARTICLES THAT MAY INTEREST YOU

Ask the Expert: How do I get UK student loan repayments right?

First Minister unveils Scotland's new programme for government 

 UK's first payroll apprenticeship is approved