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Inland Revenue

Tax Policy

OIA on overpaid student loan deductions


(Lenore Bamfield)

In an oral briefing to the Select Committee, the submitter provided information received from Inland Revenue, under an Official Information Act request, on borrowers who had significant under- and overpayments.

This information showed that there were significant numbers of borrowers who had overpaid as well as a group who had a significant over-deduction.


The request for information was quite specific in its nature in that it requested the figures for the tax year, hence not allowing for under-payments to take account of the due date for payment (being the 7th February in most cases), nor for borrower requests for refunds or other forms of transfers in the case of over-payments.

To illustrate the issue, Inland Revenue looked into 16 cases where borrowers had a serious over-deduction. Although Inland Revenue cannot discuss the specific cases, the following is a general explanation of these cases.

Two cases are awaiting the student loan account to be closed. These payments were made by the borrower to pay off the remaining loan balance in total. This is a timing lag between when payment was received, the extracting of the information for the submitter, and the closing of the borrower’s account.

There were four cases of borrowers who had large payments transferred from other taxpayers to offset the borrower’s outstanding loan balance. Over-payment can occur, as in these four cases, when the borrower’s parent or relative contributes to pay off some of the loan or all of the borrower’s loan.

In five cases, the borrowers qualified for and received an excess repayment bonus. It cannot be determined whether the excess deductions made through the PAYE system were due to an incorrect tax code being applied, incorrect deductions being made by the employer, or the borrower requesting additional student loan deductions to be made from their salary or wages. In any case, the borrowers were aware of the over-deduction and have taken advantage of the excess repayment bonus.

There were two further cases of borrowers who were in a similar position to the above five borrowers, except that due to the timing of when the information was extracted, these two cases were still waiting to receive the excess repayment bonus.

In three cases borrowers had overpaid their student loans liability and had applied for the over-deductions to be refunded.

What we can draw from the above explanations is that over-deductions are not necessarily the result of errors in the tax code used or an incorrect deduction being made. Some borrowers make a choice to overpay. In the case of smaller over-payments, it is likely that the vast majority of the smaller over-deductions are caused by employers making mistakes with deductions such as using wrong tax codes or deducting the wrong amounts. Other possible causes of overpayment include: the borrower instructing the employer to make additional PAYE deductions (voluntary repayment through the PAYE system) so that the borrower’s loan is repaid earlier or fluctuations in income received during the year.

The proposed pay-period basis of assessment for salary or wage earners will largely eliminate these problems as incorrect deductions (over the threshold) will be advised to the employer and/or borrower and corrected earlier rather than having to wait until the year-end square-up.


That the submission be noted.