Self Assessment Tax Returns and Student Loans
Although not directly related to payroll HMRC have recently highlighted an issue where an employee has a student loan, benefits in kind processed via payroll and submits a tax return.
Student loan calculations are based on income. For payroll this is the income subject to Class 1 National Insurance, payments such as business expenses are not considered. Benefits-in-Kind are also not included in Student Loan calculations where they are processed through payroll.
Benefits-in-Kind are subject to income tax but not Class 1 National Insurance. There is a Class 1A liability for the employer at the end of the tax year calculated from the total benefits reported.
Simple difference in National Insurance:
Class 1 National Insurance = ‘normal’ National Insurance where the employee and the employer pay and is the one applied via payroll and shown on the payslip
Class 1A National Insurance = is used for things like benefits-in-kind and certain payments such as redundancy. It is employer only.
The Issue
Where an employee with benefits-in-kind and student loan then completed a self assessment tax return the total PAYE income was used in the student loan calculation. This PAYE income included the value of the benefits-in-kind and was therefore pushing up student loan calculations.
HMRC solution
“From 2024 to 2025 onwards, a new box has been added to the Self Assessment tax return for reporting payrolled Benefits in Kind that are subject to Class 1A National insurance contributions (NICs) only. This is for student or postgraduate loan purposes.”
For those reporting this year there is guidance - for what to report and some additional text is required in additional information box.
Impact to Payroll
We are seeing an increase in employers both providing benefits-in-kind to their employees and also processing these via payroll. From April 2026 almost all benefits-in-kind should be reported via payroll rather than P11D. Employers may wish to warn employees of this issue as many will complete their own tax return rather than approaching a tax professional.
Additional Resources:
https://www.gov.uk/guidance/tell-hmrc-about-a-student-loan-in-your-tax-return