HMRC’s SA system uses the total pay as you earn (PAYE) income declared on the SA tax return when calculating student and postgraduate loan deductions.  Total PAYE income may include payrolled BIK.  

However, student and postgraduate loan deductions are not due on payrolled BIK and other payments (eg, some termination payments) that are not subject to class 1 national insurance contributions (NIC). This can mean that HMRC overcharges student and postgraduate loan repayments in taxpayers’ SA calculations. 

To prevent this from happening, the taxpayer should follow HMRC’s guidance when completing their tax return. The guidance applies where: 

• the person is in SA;
• they are liable to make student or postgraduate loan repayments; and
• their P60 includes payrolled BIK or other employment earnings not subject to class 1 NIC. 

HMRC first warned of this issue in its September 2023 Agent Update. At that time, HMRC also wrote to taxpayers who had been affected by the issue, explaining their options and informing them that HMRC was working to improve its systems.  

HMRC acknowledges that this issue has arisen because its SA system is not able to tell the difference between income not liable to class 1 NIC and the rest of the PAYE income. ICAEW understands that work on a fix is still ongoing, and that taxpayers should continue to apply the workaround advised by HMRC in the meantime.