Key takeaway: From April 2026, employers have begun receiving HMRC start notices for Student Loan Plan 5 — the repayment plan for graduates who started courses from August 2023 onwards. Plan 5 deductions run at 9% on earnings above £25,000 per year. Payroll software must correctly distinguish between all five student and postgraduate loan types, apply the right threshold and rate for each, and report deductions accurately through RTI. BrightPay supports all current loan plan types, ensuring bureaus and employers make the right deduction for every employee from the first notice.
Student loan deductions are one of the most error-prone areas of payroll — not because the calculation is especially complex, but because there are now multiple loan plan types with different thresholds, and the plan type for each employee comes from an HMRC start notice rather than from the employee. An employer who applies the wrong threshold to an employee’s deduction — or who fails to start deductions on receipt of a notice — creates an underpayment that HMRC will identify and pursue.
Plan 5 is the newest addition to the student loan landscape. For payroll bureaus managing employer clients with younger employees, HMRC start notices for Plan 5 will be arriving throughout 2026 as affected graduates begin working and their earnings cross the repayment threshold. Understanding what Plan 5 is, how it differs from the other plans, and how BrightPay handles the distinction is essential for any bureau running PAYE payrolls in 2026.
The Student Loan Landscape in 2026
There are now five student loan plan types and one postgraduate loan type that may appear in employer payrolls:
Plan 1: English and Welsh students who started courses before 1 September 2012, plus Scottish and Northern Irish students on pre-September 1998 plans. Repayment threshold: £26,065 per year (2026/27). Rate: 9%.
Plan 2: English and Welsh students who started courses on or after 1 September 2012. Repayment threshold: £28,470 per year (2026/27). Rate: 9%.
Plan 4: Scottish students who started courses on or after 1 September 2012. Repayment threshold: £32,745 per year (2026/27). Rate: 9%.
Plan 5: English and Welsh students who started courses on or after 1 August 2023. Repayment threshold: £25,000 per year (2026/27). Rate: 9%.
Postgraduate Loan: Postgraduate Master’s and Doctoral loans. Threshold: £21,000 per year. Rate: 6%.
The threshold differences between plans are significant. An employee on Plan 4 earning £28,000 would make no deduction under their plan, whilst an employee on Plan 2 earning the same amount would make a deduction of £184.50 per year. Applying the wrong plan code produces a systematic error for every affected employee across every pay period — which, for a bureau with many affected employees, can produce material underpayments.
What Employers Must Do on Receipt of a Plan 5 Start Notice
HMRC issues Student Loan or Postgraduate Loan Start Notices (form SL1 or PGL1) to employers when an employee’s loan repayments are due to begin. The employer must start making deductions from the next available pay period. The start notice specifies the plan type — so an employer receiving a Plan 5 start notice for an employee must begin applying Plan 5 thresholds and rates, even if the employee has not directly informed them of their loan plan.
The most important compliance rules on receipt of a notice are: start deductions from the next available pay date; do not make retrospective deductions for periods before the start notice; report all deductions through the Full Payment Submission; and retain the start notice as part of the payroll record.
Where an employee has both a student loan and a postgraduate loan, both deductions may apply simultaneously. The student loan deduction and the postgraduate loan deduction are calculated independently and each must be reported separately on the FPS.
Plan 5 Specifics: Why the Lower Threshold Matters
Plan 5’s repayment threshold of £25,000 is lower than Plan 2’s £28,470 — meaning Plan 5 borrowers begin repaying at a lower income level. For payroll bureaus, this means that Plan 5 start notices may arrive for employees who would not yet be making deductions under Plan 2. An employer who incorrectly applies Plan 2 thresholds to a Plan 5 employee will make no deduction where one is required.
Plan 5 loans also carry different interest rate and repayment term characteristics compared to other plans, but these are not employer-facing — the repayment rate and threshold are the only variables that affect payroll.
The practical implication for bureaus is: when a Plan 5 start notice arrives, apply the £25,000 threshold, not the Plan 2 threshold. For bureaus whose payroll software automatically defaults new student loan deductions to Plan 2, this requires a specific Plan 5 configuration rather than a generic student loan setup.
How BrightPay Handles All Five Plan Types
BrightPay maintains the correct repayment thresholds and rates for all five student loan plan types and the postgraduate loan, updated automatically for each tax year’s HMRC-confirmed figures. When a start notice is processed in BrightPay for a specific employee, the bureau selects the plan type from the notice and BrightPay applies the correct threshold and rate from that point forward — preventing the threshold error that a generic student loan setup can introduce.
BrightPay reports all student loan and postgraduate loan deductions through the RTI Full Payment Submission, with each plan type correctly identified. HMRC’s RTI data allows it to reconcile deductions against loan balances — discrepancies between the deductions reported and the deductions HMRC expected will generate queries. BrightPay‘s accurate plan-type reporting prevents these discrepancies from arising.
For bureaus receiving start notices for Plan 5 employees throughout 2026, BrightPay‘s support for the new plan type means no manual workaround or configuration change is needed — the plan is supported within the standard payroll setup.
Frequently Asked Questions
What is Student Loan Plan 5 and when did deductions start?
Student Loan Plan 5 applies to English and Welsh students who started higher education courses on or after 1 August 2023. Employers began receiving HMRC start notices for Plan 5 employees from April 2026, as these graduates started work and their incomes reached the repayment threshold. Deductions are 9% of earnings above £25,000 per year.
How is Plan 5 different from Plan 2?
Both Plan 2 and Plan 5 apply to English and Welsh students and charge 9% on earnings above the threshold. The key difference is the threshold: Plan 2’s repayment threshold is £28,470 per year in 2026/27, whilst Plan 5’s is £25,000. Plan 5 borrowers therefore begin repaying at a lower income level. Applying Plan 2 thresholds to a Plan 5 employee produces an under-deduction.
How does an employer know which plan type to apply?
HMRC issues a Student Loan Start Notice (SL1) to the employer, specifying the plan type. The employer must apply the plan type shown on the notice — they should not rely on the employee to inform them of their plan type. Where an employee has multiple loans (e.g. student loan plus postgraduate loan), HMRC will issue separate notices for each.
Can an employer make student loan deductions before receiving a start notice?
No. Employers must not start student loan deductions until they receive an HMRC start notice (SL1 or PGL1). Deductions should not be made retrospectively for periods before the notice date. The notice specifies the first pay period from which deductions should begin.
What happens if the wrong plan threshold is applied?
If an employer applies the wrong threshold, the deduction will be either too high (over-deduction) or too low (under-deduction). HMRC reconciles RTI-reported deductions against loan balances and will identify systematic errors. Over-deductions require refunding to the employee; under-deductions must be corrected going forward. Both create administrative work and may generate an HMRC query.
BrightPay supports all five student loan plan types and the postgraduate loan — with the correct threshold and rate for each applied automatically and deductions reported accurately through RTI. Find out more about BrightPay or speak to your account manager.
