Please note that this guidance is now incorrect, see HMRC corrects advice on threshold calculation

We recently raised with HMRC the following query that was raised by one of the payroll software developers.

The rate of earnings above which student loan deductions are made increased to £15,000 p.a. from 6 April 2005. In booklet E17, page 6, the HMRC gives the weekly and monthly equivalents of £15,000 as £288.46 and £1,250 respectively, i.e. £15,000 divided by 52 or 12 and, in the case of the weekly rate, rounded down.

The legislation, Regulation 29(2) of the Education (Student Loans) (Repayment) Regulations 2000, states

"(2) The threshold shall be-

1. where the earnings period specified in respect of those emoluments is a year, £15,000; or
   
   
2. in any other case, the amount which bears the same relation to £15,000 as the number of days, weeks or months of the earnings period specified in respect of those emoluments bears to the number of days, weeks or months in the year respectively."

We asked HMRC whether,

• if an employer is required to operate a week 53 under PAYE Regulations, the £15,000 threshold should be divided by 53 in a tax year in order to give the weekly threshold, and
  
  
• if an employer pays using irregular pay periods, the £15,000 threshold should be divided by 366 in that tax year and multiplied by the number of days in the pay period in order to give the period threshold.

We also pointed out that the technical specification for Student Loan deductions appears to support this interpretation. The threshold for any particular pay period is

"the annual threshold, multiplied by the number of days/weeks/months in the pay period, divided by the number of days/weeks/months in the tax year"

In its reply, HMRC looked at the question from the definition of an "earnings period". The earnings period for a regular weekly paid employee is 7 days. Therefore, in a 53-week tax year, the threshold should be divided by 53. Similarly, if the earnings period is a fortnight and there is a week 54, the threshold is divided by 27. And, if the earnings period is four weeks and there is a week 56, the threshold is divided by 14.

However, in the case of irregular payments in a leap year, an earnings period is normally treated as a period of a week. As a result, the threshold would be divided by 53 in a 53-week tax year. This instruction appears to conflict with the technical specification and we have pointed that out to HMRC.

Applying the calculation rules, therefore, provides the following thresholds in ordinary years and in tax years that end in a leap year:

...back to 26 May 2005

Source:
Amended - Collection of Student Loans (CSL) Specification

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