Student Loans

JodieR

I've had a letter from HMRC effectively saying that because one of my client's employers didn't deduct enough student loan repayments from her (2008/09) salary that she's now got to pay the £26 shortfall. Also, as her personal tax return was not submitted on time the £100 penalty which had been reduced to nil (as her only income was from employment and the PAYE dedcuted was correct); is now standing at £26 too.
I've never really dealt with student loans before but it seems unfair that she's being penalised for an error made by her employer.
If anyone has any further info on how this system works and any way to sort it out I'd be very greatful. I know it's not a huge amount of money but it does still seem unfair!
Jodie

wildgoose1uk

I doubt there is a way round this. At the end of the day she had the benefit of the loan. Are you suggesting she should not have to repay it but her employer should or that HMRC (and thus the taxpayer) should?

JodieR

No, I'm not suggesting that the sudent loan shouldn't be repaid, I (a) don't think that a late filing penalty should apply in this case as it wasn't TAX that was outstanding at 31 Jan, it was student loan repayments; and (b) i'm wondering whether the employer could have been correct to only deduct £319 from her in the first place in respect of student loan repayments as perhaps her initial salary was under £15k? As I say I don't know the ins and outs of how the repayments are calculated or how that information is passed to HMRC.

deanshepherd

I think we are going to have this problem next year as HMRC 'removed' some of our payroll clients from our online list which meant some student loan notifications did not get sent to us.

I would appeal against the penalty on the basis you have listed above and hope someone at HMRC got out of bed on the right side.

Why was the tax return late?

wildgoose1uk

Apologies Jodie - Iwas inweekend mode and had not read the post properly. As afr as the loan payment goes it has to be repaid at some time and I wonder how much time it is worth spending on £26.

As far as the penalty goes I agree with Dean..... and of course if the above can be dealt with at the same time that would be doubly good

JodieR

wildgoose1uk wrote: »

Apologies Jodie - Iwas inweekend mode and had not read the post properly.

No worries, I was in weekend mode too and probably hadn't articulated sufficiently!

Thanks for the replies though, the client in question is going to have a word with the payroll department at her company to see if there's a good reason why they didn't deduct what HMRC deem to be the correct amount so I'm leaving it for now until I hear back and then I'll take it from there. It will be useful to know how it all works for future anyway.

And the return was late because she's a bit ditsy and lost her P60 and march payslip and didn't sort out getting me the figures until Feb, despite many many emails etc. She's a friend of my sister - it was meant to be a simple favour for her, I don't think she even paid me for the pleasure!

JodieR

Back to this again - I've got an email from the employer saying that they only received notice to make student loan deductions in the December and as it's not a cumulative calculation overall she's not had enough deducted from her salary in respect of student loans.
This is fair enough and she'll have to pay the shortfall (although I will appeal against the penalty), but does anyone know what would have happened had she not been required to submit a tax return in 2008/09? would the amount have been included in a future tax code? or would she have just got a letter demanding payment?

payrollpro

Jodie,

That's the flaw in the whole process because if she had not been an SA case this would not have occurred. The employer is not at fault because it sounds like they operated the order as soon as, and in accordance with the rules. It's only because the SA return is going in that the shortfall has been exposed.

I agree it is grossly unfair but the AAT was one of the bodies which submitted comments when SLD was introduced and, amongst others, pointed out that lumping the process alongside tax meant potentially having the loans assessed as though it was a tax. I can remember being told this would not happen but clearly within the SA process it is happening after all.

I would start by appealing against the claim on the grounds that she was PAYE and her employer operated the order correctly so, technically, the shortfall does not exist. If HMRC had wanted the extra sum they ought to have issued the order earlier.

The process is simple, as soon as you get the order you operate it in the next pay run, or the following one at the very latest if you are already too far down the line. The earnings for the month are worked out, you deduct the threshold of £1,250 compute 9% on the balance and take off the pence.

Perhaps you need to look at her payslips and determine if the employer did do everything right.

Payrollpro

wildgoose1uk

Just be careful how much time you are spending on this and be sure that the client is willing to pay for it. For me I think appealing against the penalty and paying the £26 loan payment would be a win win all round and should not take too much time.

£26 is just not worth spending a lot of time chasing regardless of who is right when there may be a simple outcome agreeable to all. If you have spent more than an 75 minutes on it you will have a negative outcome. It just depends on if the client will pay or if you will have to swallow it. It sounds like you will not be getting paid for it anyway.

It is a difficult situation with friends though. A friend of mine was on the phone at the weekend and when he found out I was going into practice he asked me to help him with his tax return. When I mentioned that my wife had just paid her accountants £250 to do hers he said he wasn't asking me to do it for him but just to tell him where to put what bits on the form. It's hard saying no (and I didn't .... but it does rankle when I know he charges his clients £40 an hour!

JodieR

Thanks PayrollPro, that's excellent advice
And wildgoose, I am quite aware that this situation is not in any way commercially viable for me, but I'd rather try my hardest to get to the bottom of the situation as it'll no doubt crop up again in future!

payrollpro

Jodie,

I think you are right here, there is a learning experience to consider and when the new student fees and thresholds are agreed (after a bit of compromise) we are all going to be dealing with many more SLD's for a long time to come.

However, put a limit on it otherwise other work will suffer. Wildgoose, I am surprised at this, if a friend of mine called to say they had found out I was going into practice, in other words relying on commercial trading to make a living but then wanted the service for free I'm not sure they would remain as a friend. To me friends don't do this and I would not be embarassed to suggest a real fee or some other payback, a list of names for example.

We have to strike a balance but going into practice means having only the fee income as your livelyhood unless you are running it alongside employment. We are not a charity, as we often have to point out to HMRC when they suggest transferring more of their responsibilities out to us.

Payrollpro

JodieR

If anyone's interested I did write to HMRC about this and got a letter back today saying that they are no longer persueing this liability and have cancelled the penalty. No explanation as to how/why they've arrived at the decision, but good news for my client!

Monsoon

That's good news!

A question on a tangent, if I may.

A taxpayer was PAYE for April 2010 (£30k salary) and then went into his own Ltd Co, receiving salary and dividends, and was not going to have income making him a higher rate taxpayer.

CT41G is completed therefore HMRC presumably know about the directors.

No UTR or letter regarding completing a SA100 is issued.

However the taxpayer would be assessed on SLDs (but no extra tax/NI) if a SA100 were to be completed for 2010-11.

Does the taxpayer have a duty to notify and request a SA100?

If no, what will the student loans company do, if anything?

They do want to pay the SL repayments that they owe, so will be requesting one, but was just wondering if there's an obligation. I think not, because only tax liabilities require one to notify HMRC of the need for a SA100...

payrollpro

Monsoon,

I may get shot down here but my understanding is that we taxpayers are responsible for determining if we might have a liability which requires a SA return. The fact that HMRC has not issued a notice is largely irrelevant.

I am aware that if a taxpayer fails to ask for the SA100 when they ought to have known they were going to need one but simply ignored it because HMRC didn't ask for one, they are treated as having failed to comply.

I know there is more to it than that but my meetings with HMRC tend to have this principle drummed into us every time.

Monsoon

payrollpro wrote: »

Monsoon,

I may get shot down here but my understanding is that we taxpayers are responsible for determining if we might have a liability which requires a SA return. The fact that HMRC has not issued a notice is largely irrelevant.

I am aware that if a taxpayer fails to ask for the SA100 when they ought to have known they were going to need one but simply ignored it because HMRC didn't ask for one, they are treated as having failed to comply.

I know there is more to it than that but my meetings with HMRC tend to have this principle drummed into us every time.

Thanks.

I guess my point was is that this isn't a tax, it's a separate liability that just happens to be assessed alongside tax.

Oh wait, I already asked this on AWeb
http://www.accountingweb.co.uk/anyanswers/student-loan-requirement-notify-tax-return

God my memory is terrible...!!