HMRC will notify companys when they should stop deducting the student loan from an employee's pay. Occasionally you may be notified that an employee has overpaid their student loan and that a refund must be processed.

The first step will require amendments to be made to the employee's payslips in the payroll software. Before doing this, it is advisable to first take a snapshot of your data (guide here) and save copies of the employees payslips (guide here) and their P11.

Re-open the first payslip that requires the student loan deduction to be removed from. The next step required is to ensure that a student loan stop date is on the employee's record or to specify that the student loan is not applicable if they should not have had any contributions deducted.

You can now go back to the payroll screen. The student loan element will have disappeared if the option to deduct student loan has been removed or if the stop date is prior to the pay reference period you are in. You can now re-finalise the payslip. To notify HMRC of this change, you can send an additional FPS to HMRC for that period. Ensure to select that this is a correction to an earlier submission for your late reporting reason.

Repeat these steps for any subsequent periods that you are refunding the student loan deduction for. HMRC will now be aware that you have overpaid the student loan and will make adjustmets to your account accordingly. 

In order to process this underpayment to the employee, you can add a non taxable addition to their next payslip. Click here to see how to add additions to a payslip. This addition should not be subject to tax, national insurance or pension.