After working through April, the busiest time of year for all payroll departments, I wanted to take a moment to reflect on some key changes that came into effect at the start of the new tax year.
As payrollers, we know April can be intense. Accuracy is crucial, and we always aim to ensure all checks are completed thoroughly. One area I’ve seen consistently overlooked over the years is how student loan deductions are calculated.
Too often, employers and employees rely on the software alone, assuming “the system will work it out.” But do you know how the calculations are actually made?
Here are the updated repayment thresholds from 6 April 2025:
| Plan | Annual Threshold | Monthly Threshold | Weekly Threshold | Repayment Rate |
|---|---|---|---|---|
| Plan 1 | £26,065 | £2,172 | £501 | 9% |
| Plan 2 | £28,470 | £2,372 | £547 | 9% |
| Plan 4 | £32,745 | £2,728 | £629 | 9% |
| Postgraduate | £21,000 | £1,750 | £403 | 6% |
Example Calculation:
Let’s say you’re on Plan 1 with an annual income of £35,000, which gives a gross monthly salary of £2,916.67.
Calculation:
£2,916.67 – £2,172 (Plan 1 threshold) = £744.67
9% of £744.67 = £67.02
So, your monthly student loan repayment would be £67.00
You can use the same method for other plans – simply subtract the relevant threshold from your gross pay and apply the plan’s repayment rate.
What is Plan 5?
Plan 5 is a new repayment plan being introduced for students starting undergraduate or advanced learner loan courses on or after 1 August 2023.
Repayments will begin from 2026 at the earliest, with a threshold of £25,000 per year and a repayment rate of 9%.
Need help navigating student loan deductions or other payroll complexities?
Get in touch with our expert payroll team at Lambert Chapman. We’re here to ensure your calculations are accurate and compliant.
Disclaimer
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.