A new student loan repayment plan, Plan 5, takes effect from 6 April 2026. Employers operating PAYE will need to ensure that the correct student loan deductions are applied for employees who started an eligible course on or after 1 August 2023.
Plan 5 follows the same PAYE collection principles as existing student loan plans. However, it introduces a new plan type with its own repayment threshold and deduction criteria. Employers must ensure that payroll systems and processes are updated in advance to apply deductions correctly and in line with HMRC’s student loan guidance.
This guide explains the scope of Plan 5, how deductions are calculated, and what employers need to do to stay compliant.
What Is Student Loan Plan 5?
Plan 5 is a new student loan repayment option for employees in England who applied via Student Finance England and started an undergraduate or advanced learner loan course on or after 1 August 2023.
Employees who commenced their course before this date will continue repaying under their existing student loan plan, based on when and where they studied.
Repayment obligations for Plan 5 begin on 6 April 2026, covering the 2026 to 2027 tax year. Employers are required to implement PAYE deductions upon receipt of a notification from HMRC.
How Do Plan 5 Repayments Work?
Plan 5 repayments are operated in the same way as other student loan plans through PAYE. Deductions are calculated as a percentage of an employee’s earnings above a set threshold.
The key figures for Plan 5 are:
- Threshold: £25,000 per year (£2,083 per month / £480 per week)
- Repayment rate: 9% of earnings above the threshold
- Collection method: PAYE for employees, or through the Self Assessment system where applicable
Deductions are calculated per pay period based on the employee’s earnings within that period. If earnings exceed the threshold, a deduction applies; if they fall below it, no deduction is taken.
Deductions adjust automatically with pay changes. Bonuses or overtime will result in higher deductions for that period. Employers are required to process all deductions through PAYE when instructed by HMRC.
What Employers Need to Do
From April 2026, employers may begin receiving student loan start notices from HMRC for Plan 5. These notices specify when to begin deductions for each individual employee. Employers must process these promptly and accurately through PAYE.
With Plan 5 now in effect, employers should confirm the following measures are in place:
Make sure payroll software is current
As Plan 5 represents a new loan type, payroll systems must be correctly configured to handle it. Employers should verify that their software supports Plan 5 deductions, applies the correct thresholds and rates, and processes HMRC notices accurately. Failure to update payroll software may result in incorrect or missed deductions that require subsequent correction.
Apply the correct plan type
Employees can only hold one undergraduate student loan plan at a time, whether that is Plan 1, Plan 2, Plan 4, or Plan 5. A Postgraduate Loan (PGL) can be deducted alongside an undergraduate plan where applicable. If a Plan 5 notice is received for an employee already subject to deductions under another plan, confirm the position with HMRC before making any changes.
Act only on HMRC notifications
Employers must only start or stop student loan deductions when instructed by HMRC, for example via an SL1 or SL2 notice. Further detail on how PAYE notices work is available on the GOV.UK employer PAYE guidance pages.
What This Means for Employees
If you started your course on or after 1 August 2023, your student loan will be repaid under Plan 5 beginning 6 April 2026. If you are employed, no action is required. Repayments will be automatically deducted through PAYE once your employer receives a notice from HMRC.
If you are not paid via PAYE, you will need to make repayments through Self Assessment and include the relevant details when filing your tax return.
Why Getting This Right Matters
Errors in student loan deductions can lead to non-compliance with PAYE obligations. The introduction of a new plan type increases the likelihood of mistakes, particularly for employers managing payroll in-house without specialist support.
Common problems include selecting the wrong plan type, missing HMRC start notices, or failing to update payroll software in time. These errors can cause deductions to be incorrectly processed, resulting in inaccurate payslips and the need for payroll corrections, sometimes requiring additional reporting or direct communication with HMRC.
For employers with employees who started their studies on different dates, it is especially important to verify that the correct loan plan is applied. Reviewing current payroll records is a useful step to identify and correct any discrepancies before they create ongoing compliance issues.
How The Infinity Group Can Help
At The Infinity Group, we provide fully managed payroll services, ensuring your payroll is processed accurately and in compliance with current legislation.
With Plan 5 now active, employers must ensure that student loan deductions are applied correctly in line with HMRC requirements. By outsourcing your payroll to us, you can be confident that all HMRC notices are actioned promptly, the correct plan type is applied, and deductions are operated correctly through PAYE.
Our service removes the administrative burden and protects your business from the risk of non-compliance, so you can focus on running it.