HMRC has confirmed that it will take action to reduce or remove self assessment student or postgraduate loan deductions so graduates do not pay back too much.

The guidance has been updated to stress that the Student Loans Company will have to keep HMRC informed about any changes to status of loans.

This makes sense as hundreds of graduates have overpaid loans as they did not realise they had been paid off in full.

HMRC has also confirmed that graduates have to tell HMRC details of any student loan or postgraduate loan repayment plans when completing self assessment tax returns.

It is essential to complete the student or postgraduate loan repayment section of the self assessment tax return if the Student Loans Company (SLC) has said repayments were due to start on or before 6 April of the year you’re completing your return for.

Anyone paying both a student loan and a postgraduate loan will need to complete both sections.

HMRC stressed: ‘If you do not give the correct information, you may have to pay penalties.’

Student loan Plan 1, 2 or 4 deductions will be calculated based on 9% of total self assessment (SA) income above the threshold of the repayment plan type.

Postgraduate loan deductions will be calculated based on 6% of total self assessment income above the threshold.

Anyone with both an undergraduate and postgraduate student loan will have to repay 15% of their total income above the threshold.

The guidance focuses on the rules for self-employed graduates, including total reportable income, including:

• any PAYE employment income for the relevant tax year — income for all employments will be combined, even if they were under the threshold through PAYE;
• self employed profits;
• property income;
• unearned income in excess of £2,000; and
• income affected by the new tax year basis (also known as basis period reform).

The guidance stated: ‘If you were employed in the relevant tax year, and your pay was over the threshold for your loan or plan type, then your employer would have taken student and postgraduate loan repayments from your salary through PAYE.

‘We will deduct these repayments from the amount you have to repay through self assessment.’

HMRC systems will use the information supplied by the Student Loan Company to work out the correct repayment amounts due. This information is likely to be pre-populated on self assessment forms in the relevant boxes.

If these boxes are changed, a warning message will pop up if the entry has been changed and the entry is different from the plan type or loan provided by the Student Loan Company.

Recording incorrect loan types will affect the student loan and postgraduate loan amount charged. HMRC systems will verify the information supplied by the Student Loan Company and a calculation will be automatically issued to advise of any changes.

It is important not to include any overseas direct debit payments or voluntary payments on tax returns.

HMRC guidance, Tell HMRC about a student loan in your tax return

A taxing life ahead for graduates on student loans | 16 May 2024

YouTube video, How do I show student loan and postgraduate loan on my tax return?