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Starting April 2026, UK payroll enters a new era with Plan 5 Student Loans. If you employ recent graduates, you are likely to see a surge in SL1 Start Notices from HMRC.
IBISS & CO experts analysed the latest rules to make sure your finance team isn’t caught off guard. Plan 5 isn’t just another number. It changes the take home pay conversation for your youngest team members.
What are Plan 5 Student Loans?
Plan 5 applies strictly to students from England who started undergraduate courses on or after 1 August 2023.
- Threshold: Repayments trigger once an employee earns over £25,000 a year (£2,083 per month).
- Rate: Like most plans, the deduction is 9% of everything earned above that threshold.
- Duration: Unlike the 30 year write off for Plan 2, Plan 5 loans last for 40 years. This means your younger staff will likely be repaying these loans for almost their entire working lives.
Multiple Plans Rule
Do Employees Pay Double?
One of the biggest anxieties for employees (and a common question for Payroll Clerks) is what happens if someone has two loans (e.g., a Plan 2 for an old degree and a Plan 5 for a new one).
They do not pay 9% for each. HMRC rules state that if an employee has multiple plan types, they pay 9% total on the amount above the lowest threshold they have.
Example: If they have Plan 5 (£25k threshold) and Plan 2 (£27k threshold), the 9% deduction starts at £25,000. Your payroll software handles the split behind the scenes, so the employee is never double charged for student loans.
Interest Rate Win
While Plan 5 has a lower threshold and a longer term, there is one piece of good news you can share with concerned staff: The Interest Rate Cap.
Plan 5 interest is strictly capped at the Retail Price Index (RPI). Under Plan 2, interest could be RPI + 3%. This means that while Plan 5 employees start paying sooner, the total debt grows much more slowly than it did for the previous generation.
Updating the 2026 Starter Checklist
This is the most important step for SME owners. When a new hire joins after April 2026, you cannot rely on an old onboarding process.
You must use the Updated 2026 Starter Checklist. If a new hire is on Plan 5 but your checklist only has boxes for Plans 1, 2, and 4, you will fail to deduct the correct amount. HMRC holds the employer responsible for these under deductions. Ensuring your 2026 onboarding forms are compliant is the best way to avoid catch up penalties later.
FAQ Plan 5 Student Loans
When did Plan 5 student loans officially start?
Deductions from pay for Plan 5 student loans officially begin on 6 April 2026. This plan applies to students from England who started undergraduate or advanced learner courses on or after 1 August 2023.
What is the earnings threshold for Plan 5?
For the 2026/27 tax year, the repayment threshold for Plan 5 is £25,000 per year. This breaks down to:
- Monthly: £2,083
- Weekly: £480
How long until a Plan 5 student loan is written off?
Unlike previous plans, Plan 5 loans are cancelled 40 years after the borrower is first due to start making repayments. For comparison, Plan 2 and Plan 4 loans are typically wiped after 30 years.
How do I know if a new employee is on Plan 5?
You can identify Plan 5 borrowers through two main channels.
- SL1 Start Notice HMRC began issuing these specifically for Plan 5 in March 2026.
- 2026 Starter Checklist New hires joining from April 2026 must use the updated checklist, which now includes a specific box for Plan 5.
What if an employee has multiple student loan plans?
Employers can only deduct one student loan plan type Plan 1, 2, 4 or 5 at a time. If an employee selects multiple plans. You must follow HMRC priority order which focuses on the plan with the lowest threshold to trigger a deduction starting with Plan 5. Note that a Postgraduate Loan can still be deducted at the same time as any one of the other plans.
Conclusion
The introduction of Plan 5 adds another layer of complexity to UK payroll. Between managing the new SL1 notices and explaining the 9% cap to worried graduates, it’s easy for small errors to slip through.
IBISS & CO.,take the guesswork out of compliance. We make sure your payroll is updated for the 2026/27 tax year, protecting your business from penalties and your employees from surprises.
Is your payroll ready for the April 2026 shift?
Explore our UK Payroll Services for a full compliance audit.
Contact Us to update your 2026 employee onboarding process or any gernal quries.
