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Thousands overcharged student loan repayments on tax returns

Paloma Kubiak
Written By:
Paloma Kubiak

Thousands of graduates have paid too much money when repaying their student loans on self-assessment tax returns, HMRC has confirmed.

An estimated 16,000 borrowers are impacted by an HMRC system issue which ultimately resulted in a higher student loan charge of around £100.

HMRC is now writing to these borrowers to apologise and explain how they can get the overpayment repaid, while it also looks to fix the problem.

Here’s what you need to know about the issue and how to get your money back.

Who’s impacted?

HMRC confirmed the issue impacts graduate borrowers who are:

  • Repaying a student loan and
  • Receiving payrolled benefits in kind that are not subject to Class 1 National Insurance contributions (NICs) through their employer and
  • In self-assessment.

An estimated 16,000 customers have been affected by this issue since the introduction of payrolling benefits in kind (BIKs) on a voluntary basis since 6 April 2016.

What’s the issue?

When HMRC work out student loan repayments, one of the figures used is the total PAYE income declared on a self-assessment tax return.

If this figure includes payrolled BIKs, then self-assessment calculates student loan repayments on this.

But student loan deductions aren’t due on payrolled benefits in kind that aren’t subject to Class 1 NICs. This could include benefits such as car parking fees reimbursement, uniform costs or eye care tests or vouchers.

Currently HMRC systems aren’t able to distinguish between payrolled benefits in kind and the rest of the PAYE income. As a result, it included payrolled benefits in kind in calculations when it shouldn’t have which resulted in a higher student loan charge.

The average over-repayment is £104 in total for all affected years, with the median over-repayment amount standing at £44 in total.

Customers will now be given a choice between a refund or having the overpayment offset against their loan rebalance, with further details sent in letters.

It is also working to fix the problem so that payrolled benefits in kind that aren’t subject to Class 1 NICs can be separated from the total PAYE income on self-assessment tax returns.

An HMRC spokesperson said: “We’re writing to customers whose self-assessment tax returns have been affected, apologising and explaining what they need to do. We’ve introduced a temporary solution and aim to have a permanent fix for the 2024/25 tax year.”