I had this dialogue with somebody at SLC. They had been adamant PAYE deductions are made pre-tax but they had been unaware of a tax profit in comparison with paying by direct debit. I defined why, if PAYE was pre-tax, there could be a profit and it appeared new to him. He then spoke to one in all his colleagues who was adamant there was no tax profit to it, however was additionally adamant PAYE deductions had been pre-tax – which does not make sense to me. If it was pre-tax, it might create a tax profit.
The solely means I’ve been in a position to make sense of that is to consider the student loan cost as a tax itself, reasonably than pondering of it pre or submit tax.
Tax (earnings tax and nationwide insurance) is at all times deducted from the full of your gross pay – whether or not or not you’ve got a student loan. That does not change while making student loan funds and should not change after you end student loan funds, your earnings tax and nationwide insurance ought to be the identical in relation to your gross pay.
So, when you consider the student loan cost as a tax itself, it means it does not must be taxed, as a result of you aren’t getting earnings tax in your nationwide insurance deduction quantity – you simply have earnings tax off your gross pay after which nationwide insurance off your gross pay. You do not calculate earnings tax off your nationwide insurance cost and vice versa, so that you would not calculate further earnings tax or nationwide insurance off your student loan cost both. That’s why they confer with it as being “pre-tax” or they are saying it isn’t taxed. But it’s a must to consider it being utilized to your gross pay on the similar time, alongside tax, or as if it was metaphorically a tax itself – not enthusiastic about it being taken earlier than or after tax.
The proof will likely be within the pudding in January once I get my first pay slip with no SLC deduction. My internet pay has to extend as a result of I’m not having these deductions from my pay. If my internet pay goes up by the precise quantity that I used to lose to the SLC PAYE deduction, then the above idea is correct that you must consider the SLC funds as a metaphorical tax themselves reasonably than earlier than or after tax. If my internet pay solely goes up by 68% of what I used to pay for SLC PAYE deduction, then my earlier idea that SLC deductions are taken pre-tax was right. If my internet pay goes up by another quantity, then I’ll pull my hair out!