Student Loan Repayments: Increased Thresholds From April 2021
Repayment of student loans is a shared responsibility between the Student Loans Company (SLC) and HMRC. Employers have an obligation to deduct student loan repayments in certain circumstances and to account for such payments ‘in like manner as income tax payable under the Taxes Acts’.
There are two plan types
for student loan repayments, which have different repayment thresholds. From
April 2021, the thresholds are as follows:
•
plan
1 with a 2021-22 threshold of £19,895 (£1,658 a month or £382 per week) rising
from £19,390 in 2020-21); and
•
plan
2 with a 2021-22 threshold of £27,295 (£2,275 a month or £525 per week) rising
from £26,575 in 2020-21).
Plan 1 loans are
pre-September 2012 Income Contingent Student Loans and repayments will start
when the £19,895 threshold is reached. Loans taken out post-September 2012 in
England and Wales become eligible for repayment when the higher threshold of
£27,295 is reached. Previously plan 2
loans have been repaid outside of the payroll directly to the SLC, but from
April 2016 they are to be calculated and repaid via deduction from an
employer’s payroll. This means that employers and payroll software must be
capable of coping with both types of plans.
From 6 April 2021 HMRC are
introducing a new plan type for Scottish Student Loans (SSL) known as Plan 4.
The Plan 4 threshold will be £25,000. Student Loan deductions will continue to
be calculated at 9% on earnings above the Plan 1, Plan 2 or Plan 4 threshold.
Post-graduate
loans
Repayment of postgraduate
loans (PGL) via PAYE commenced from April 2019. Broadly, if an individual has a
PGL, HMRC will send their employer a Postgraduate start notice (PGL1) to ask
them to start taking PGL deductions. Individuals may also be liable to repay a
Student Loan Plan Type 1 or 2 concurrently with PGL. HMRC will let their
employer know this by continuing to send the normal Student Loan start (SL1)
and Student Loan stop (SL2) notices as well as PGL1s and PGL2s.
The Postgraduate Loan
threshold will remain at its current level of £21,000 for 2021-22. Earnings
above £21,000 will continue to be calculated at 6%.
Repayment
Broadly, an employer must
start making student loan deductions from the next available payday using the
correct plan type if any of the following apply:
•
a
new employee’s P45 shows deductions should continue – the employer will need to
ascertain which plan type the employee has;
•
a
new employee confirms they are repaying a student loan – again, the employer
will need to confirm the plan type;
•
a
new employee completes a starter checklist showing they have a student loan -
the checklist will tell the employer which plan type to use; or
•
HMRC
issues form SL1 (Start Notice), which will tell the employer which plan type to
use.
Employers are not
responsible for handling employees’ student loan queries – the employee must
contact SLC for this (https://www.gov.uk/government/organisations/student-loans-company).
Student loan deductions are
made from gross pay, alongside tax and NIC.
Deductions are rounded down
to the nearest pound. Deductions are non-cumulative, and so employers can
ignore the question of amounts already deducted by a former employer. HMRC
provide tables to assist employers in calculating the deduction each pay day,
which (because of rounding) may not be exactly 1/52 of the annual amount, and
furthermore this is something you could discuss with our audit firms in London
and the surrounding areas especially in relation to tax assist, London.
If an employee has two
jobs, the employer does not need to be concerned with the employee’s other
income, but should calculate the deduction based only on amounts paid by him.
However, if the employee has two employments with the same employer, these
should be aggregated for student loan purposes if they are aggregated for NIC
purposes.
Employers are required to
collect student loan repayments through the PAYE system by making deductions of
9% from an employee’s pay to the extent that earnings exceed the relevant threshold
for each plan type, each year (see above).
Each pay day is looked at
separately, and so repayments may vary according to how much the employee has
been paid in that week or month. If income falls below the starting limit for
that week/month, the employer should not make a deduction.
Taxpayers who make
repayments through PAYE can swap to repaying by direct debit in the last 23
months of their loan if they so wish. SLC will normally contact individuals
shortly before this time to offer this option. This payment method enables
account holders to choose a suitable monthly repayment date and ensures that
they do not repay too much.
If an employee makes
additional student loan repayments direct to SLC, they will have no effect on
the size of the repayments made through the payroll – the employer will
continue to deduct 9% of earnings above the threshold. The employee will, of
course, pay off the loan more quickly.
For further guidance regarding
income tax advice
London, arrange a consultation with one of our accountants.
Partner note: Employer Bulletin, issue 86 (October 2020): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/909454/Employer-Bulletin-85_v6_Accessible.pdf; HMRC guidance: Repaying your student loan: https://www.gov.uk/repaying-your-student-loan
Social
media
#Furloughed employees might
have their student loan payments reduced. Make sure you’ve been calculating it
correctly! #Covid19 #SSL
For furloughed employees
check that you’ve been calculating student loan repayments correctly as they
are income dependent. A new repayment plan is also being introduced for
Scottish Student Loans from April. Read our quick blog to get up to speed.
Business
rates update
The government is currently
undertaking a fundamental review of the current business rates system,
including ideas for possible change and a number of alternative taxes.
Conclusions and any changes are likely to be forthcoming in Spring 2021.
Many businesses feel that
the current system for calculating business rates is antiquated as it is based
on estimated open market rental values from 1 April 2015.
Broadly, at revaluation,
the Valuation Office Agency (VOA) adjusts the rateable value of business
properties to reflect changes in the property market. This usually happens
every five years. The most recent revaluation came into effect in England and
Wales on 1 April 2017, based on rateable values from 1 April 2015. The rateable
value is multiplied by the correct ‘multiplier’ (an amount set by central
government) to give annual business rates payable. As previously mentioned, our
audit firms in London
and the surrounding areas would be more than willing to assist with this
further, providing expert income tax advice London.
The next revaluation will take
effect in 2023 and the government has confirmed that this will be based on
property values as of 1 April 2021 as this will help reflect the impact of
Covid-19 more closely.
Covid-19
support
There are two business
rates multipliers set by central government. The ‘small business multiplier’
applies to properties with RVs below £51,000, and the ‘standard multiplier’
applies to properties with RVs of £51,000 or more. Around 1.8 million
properties, out of approximately 2 million rateable properties in England, use
the small business rates multiplier.
In the recent Comprehensive
Spending Review (25 November 2020), the Chancellor announced a freeze on the
business rates multiplier in 2021/22 meaning that the multiplier in England for
‘small’ businesses will remain at 49.9p and for large businesses it will remain
at 51.2p assuming no further changes to the small business supplement are made.
The freeze is expected to cost the Exchequer £575m, which means a saving to
retail of around £145m on what would have been paid if business rates were to
be levied at 100%.
Small
business rate relief
A business may be able to
obtain a discount from its local council if it is eligible for small business
rate relief. This generally applies where the property’s rateable value is less
than £15,000. The business will not pay business rates on a property with a
rateable value of £12,000 or less. For properties with a rateable value of
£12,001 to £15,000, the rate of relief will go down gradually from 100% to 0%.
For example, where property rateable value is £13,500, the business the
discount is 50%, for a rateable value of £14,000, the discount is 33%.
As part of the government’s
Coronavirus support package, in March 2020, the Chancellor announced a
wide-ranging expansion to the business rate discount set out in the Spring
Budget 2020. From 1 April 2020, all shops, pubs, theatres, music venues,
restaurants and any other business in the retail, hospitality or leisure
sectors, have been given a 100% holiday from paying business rates for twelve
months. This measure applies to such businesses irrespective of their
properties’ rateable value, ensuring that all businesses (as opposed to mostly
SMEs) within these industries receive the same government support to manage and
survive the pandemic.
It is not currently known
whether the business rate relief holiday will be extended beyond March 2021.
The
way forward
Whilst the 2021/22 freeze
is welcome, it is a small step compared to the much bigger question of whether
there will be any business rates relief for retail next year. In addition, the
professional bodies are keen to see the government go further. The ICAEW for
example, says that a reduction in the multiplier may be a simpler and
relatively fairer way for the government to preserve the core revenue base,
while giving time to properly consider further reform of business rates to
reflect the changes in the way that business now operates, in particular with
the move to online which has accelerated since the start of lockdown.
Partner note: Business Rates Review: Call for Evidence: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/903429/Business_Rates_Review_-_CfE.pdf; HMRC business rates relief: https://www.gov.uk/apply-for-business-rate-relief/small-business-rate-relief
Social
media
Keep your eyes peeled for
announcements about changes to business rates relief this year – Here’s the
latest. #TaxNews #BusinessRates #Covid19
On 25 November the Chancellor announced a freeze on the business rates multiplier in 2021/22, but the ICAEW thinks the government should go further by reducing the multiplier. What do you think the government should do?
Recent
issues for EMI schemes
When it was first
introduced in 2000, the Enterprise Management Incentive (EMI) scheme had an
initial life expectancy of around five years, but arrangements proved to be so
popular with employers and employees alike that the scheme is still going
strong some twenty years on.
In broad terms, the EMI is
a tax-advantaged share option scheme designed for smaller companies who are
looking to attract and retain key staff by rewarding them with equity
participation in the business. The scheme is particularly popular with smaller,
entrepreneurial companies that might not be able to match the salaries paid by larger firms.
A share option is a right
to acquire shares in a company, on terms set out in an option agreement. This
will specify how many shares an employee may acquire, how much he or she will
have to pay for the shares, and when the shares can be acquired through
exercise of the option. Option exercise may occur, for example, after a
specified period of employment, on achieving prescribed performance targets, or
the sale of the company.
EMI is open to companies
with gross assets of £30m or less, and with fewer than 250 full time equivalent
employees that carry on a qualifying trade. It enables them to offer share
options worth up to £250,000 over a three-year period as an incentive. If the
shares are bought at the market rate at the time the options were granted,
employees pay no income tax or national insurance on
the difference between what the shares are worth when acquired compared to the
price paid. Capital gains tax will be payable on any gains made when the shares
are subsequently disposed of. We are proud to work in the realm of tax
assist London, providing expert income tax advice in London and the
surrounding areas. Get in touch for further information.
Example
David is given an EMI
option to acquire a 3% shareholding in his employer’s company for its market
value of £10,000. Four years later he exercises the option when the shares are
worth £100,000, and eventually sells them for £150,000 when the company is
taken over.
David will not pay any tax
when the option is granted or when he exercises it. When the shares are sold,
David will pay capital gains tax on his gain of £140,000 (£150,000 sale
proceeds less £10,000 option exercise price). Ignoring any reliefs he may have
available, capital gains tax will be charged at a rate of 10%, so tax of
£14,000 will be payable.
Covid-19
and the working time requirement
One of the qualifying criteria
for EMIs is that employees and directors need to be engaged to work at least 25
hours per week for their company or group or, if less, for at least 75% of
their working time. So a part time employee can qualify by working say two days
a week for the company, provided that work elsewhere does not amount to more
than 25% of the whole.
Some participants in EMI
schemes have been unable to meet the working time requirement because of
reasons connected to the Coronavirus pandemic.
HMRC have confirmed that if
an employee would otherwise have met the scheme requirements but did not do so
for reasons connected to the Coronavirus pandemic, the time which they would
have spent on the business of the company will count towards their working
time.
HMRC accept the following
as reasons for which an employee may have been unable to meet the working time
requirements:
·
furlough
·
working
reduced hours
·
unpaid
leave
In all cases the reason
must be attributable to the current Coronavirus pandemic and the period must
have begun on or after 19 March 2020.
Employers and employees
must keep evidence to show that there is a link to the Coronavirus pandemic.
EMI
post-transition
HMRC have also recently
confirmed that EMI schemes will continue to be available after the Brexit transition
period ends on 31 December 2020. Previously, EMI schemes were approved under EU
state aid rules and in February 2020 HMRC could only confirm that EMI would be
recognised until the end of the transition period. However, HMRC have now
stated that schemes will operate from 1 January 2021 under UK law.
Partner note: ITEPA 2003, Schedule 5; HMRC Employment Related Securities Bulleting (37): https://www.gov.uk/guidance/employment-related-securities-bulletin-37-october-2020
Social
media
Do you use the #EMI scheme
with your employees? #HMRC have confirmed that #Covid19 related reduction in
work time won’t affect eligibility. Read more below.
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