Student loan deductions are taken from your pay and the LLP reserves these amounts, rather than paying them across on a monthly/weekly basis. Any ‘statutory’ student loan liability which is triggered because of your LLP profit share on your Self-Assessment tax return is then paid by the LLP, on your behalf. Where the statutory student loan liability is less than what has been reserved in a given financial year, the LLP will make a voluntary payment for the remainder. Interest is added to the amounts reserved to ensure the individual is in no worse position.
When joining an LLP, student loan deductions will be made from your pay as they would’ve been under normal employment, using the same rates to calculate this as if you were on PAYE. However, rather than these amounts being paid across to HMRC on a monthly basis, they are instead reserved by the LLP, possibly in a separate bank account.
The reason these amounts cannot be paid across monthly is because a statutory loan liability may be triggered when an LLP profit allocation is allocated and declared on your Personal Tax Return. LLP profit allocations cover amounts drawn from the LLP and more detail on the mechanics of your pay can be found here (Payslips), and here (Profit Share).
When an allocation of LLP profits is enough to exceed the student loan threshold, a statutory liability is triggered which is calculated at 9% above this amount. This statutory liability is then paid from reserve generated from the deductions from your pay. If your statutory loan liability is less than what has been deducted from your pay in the relevant financial year, then the LLP will make a ‘voluntary’ payment directly to the Student Loans Company (SLC) for the remainder of the reserve in that year.
Deductions made for a student loan through employment are first paid to HMRC, who then pass these amounts on to the SLC. Amounts paid for statutory student loan liabilities in relation to self-assessment are also first paid to HMRC, who then pass them on to the SLC. Voluntary repayments are made directly to the SLC.
Why aren’t amounts shown as deductions for student loan appearing on my Student Loan Statement?
- Deductions are made from your monthly/weekly pay.
- The LLP reserves these amounts.
- Any ‘statutory’ student loan liabilities as a result of the LLP profit share on your self-assessment tax return are paid from these reserves.
- Any reserves left over will be paid voluntarily.
- Interest is added to the reserves to ensure the individuals are in no worse position.
Why don’t the amounts deducted for student loan on my pay statement appear on my student loan statement?
One of the most common questions we receive is ‘why don’t the amounts deducted for student loan on my pay statement appear on my student loan statement?’. The reason for this is linked directly to the above.
If the LLP were to pay across the student loan amounts as a voluntary payment on a monthly basis and a statutory liability occurred as result of a profit allocation, there would be no reserve to pay this liability from and it would then fall on the individual.
As a result of this, there can sometimes be a delay between the amounts being deducted and eventually paid across to the SLC, which is why we calculate interest on these amounts to ensure the individual is in no worse position.
What happens if I leave the LLP?
As you may know from reading our article about life of an LLP member here, when you leave an LLP there is a delay between the date in which you leave and your final Personal Tax Return being submitted which has information relating to your membership of the LLP on it. As a result of this, a student loan reserve may need to be held until the statutory loan liability is ascertained before any voluntary can be made thereafter.
I’m close to paying off my student loan and I know the LLP has amounts reserved which may exceed the remaining balance, what do I do?
If you believe you’re close to paying off your student loan and you think the LLP may hold enough in your reserve to cover this, get in touch with us with your most recent balance/statement and we’ll have a look to see if the remainder can be paid off as an immediate voluntary payment. It’s important that we’re certain your whole balance will be paid off, because otherwise HMRC may expect a statutory student loan liability payment, due on 31 January, which would be payable by you.