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Student loan deductions on a client's payroll: 9% over the plan threshold, worked for a £3,000 monthly wage
GOV.UK sets 2026 to 2027 loan thresholds from £21,000 to £33,795. HMRC says deductions are non-cumulative and rounded down. Worked on £3,000 and £6,000 months.
A client takes on an employee and the new starter form says "student loan, plan 2". The client asks the practice what comes off the wage. The answer is a short sum, but it behaves differently from income tax: it is worked afresh each pay period, so one big month produces one big deduction.
What the sources say
The GOV.UK rates and thresholds page for 2026 to 2027 lists these repayment thresholds and rates:
| Loan | Annual threshold | Monthly threshold | Rate |
|---|---|---|---|
| Plan 1 | £26,900 | £2,241.66 | 9% |
| Plan 2 | £29,385 | £2,448.75 | 9% |
| Plan 4 | £33,795 | £2,816.25 | 9% |
| Plan 5 | £25,000 | £2,083.33 | 9% |
| Postgraduate loan | £21,000 | £1,750.00 | 6% |
HMRC's Collection of Student Loans Manual (CSLM10111) says employees repay the percentage "of the amount they earn over the threshold", using the same gross pay for the pay period that is used for employer secondary Class 1 National Insurance, and that "the deductions are non-cumulative". The manual page on irregular pay periods (CSLM17065) tells the employer to multiply the excess by the rate and, if that leaves pence, round down to the whole pound below.
The sum, one wage, five loans
Take an employee paid £3,000 gross in a calendar month. Excess is pay less the monthly threshold; the deduction is the excess times the rate, rounded down.
| Loan | Working | Raw figure | Deducted |
|---|---|---|---|
| Plan 1 | (£3,000 - £2,241.66) = £758.34 x 9% | £68.2506 | £68 |
| Plan 2 | (£3,000 - £2,448.75) = £551.25 x 9% | £49.6125 | £49 |
| Plan 4 | (£3,000 - £2,816.25) = £183.75 x 9% | £16.5375 | £16 |
| Plan 5 | (£3,000 - £2,083.33) = £916.67 x 9% | £82.5003 | £82 |
| Postgraduate | (£3,000 - £1,750.00) = £1,250 x 6% | £75.0000 | £75 |
Over twelve equal months the Plan 2 deduction is £49 x 12 = £588.
Why a bonus month looks wrong but is not
Because the calculation is non-cumulative, the annual threshold does not "average out" over the year. Give the same Plan 2 employee a £6,000 gross month:
- Excess: £6,000 - £2,448.75 = £3,551.25
- Deduction: £3,551.25 x 9% = £319.6125, taken as £319
That is 6.5 times the £49 of a normal month (319 / 49 = 6.51). Nothing is refunded in later months to even it out. Clients often assume the employee has "overpaid" and ring the practice to ask; the sum above is the answer.
What to check on the client's payroll
- The plan is on the starter details. The thresholds above are per plan, so the wrong plan changes the deduction. See the new client onboarding checklist for where to collect it.
- Employer cost is separate. The employee's loan does not change what the employer pays in National Insurance: see the Employment Allowance worked example.
- Directors and sole traders are different. A sole trader's loan is collected through Self Assessment, which this sum does not cover; for the bill itself see a client who cannot pay.
What I did not read
I did not read the HMRC rules for an employee with both a plan loan and a postgraduate loan, so I have not added the two deductions together. The rounding step comes from the manual page for irregular pay periods; I did not find a separate monthly rounding rule on the pages I read, and I assumed the same round-down. I did not read the deduction tables, the stop-notice process, or the weekly figures, and the thresholds change by tax year.
Overlyft builds AI staff who join your practice team and take each payroll run's starter details and gross pay, work out the loan deduction by plan and show the sum for the person running payroll to approve before anything is filed.
This is general information, not legal or financial advice. Check the GOV.UK and HMRC pages for your client's case.
Where this comes from: GOV.UK, "Rates and thresholds for employers 2026 to 2027" (loan thresholds, monthly figures and 9% / 6% rates) and HMRC Collection of Student Loans Manual, CSLM10111 (9% over the threshold, same gross pay as secondary Class 1, non-cumulative) and CSLM17065 (round the excess times the rate down to the whole pound). Read 20 October 2026.
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