HMRC’s Self-Assessment system contains a long-standing technical limitation that affects workers who file a Self-Assessment tax return and repay a Student Loan. The issue occurs because the calculation system is unable to separate employment income that is subject to Class 1 NIC from tronc payments that are exempt from Class 1 NIC when a worker reports their total P60 pay.

This has significant implications for individuals who receive tronc payments that are exempt from Class 1 NIC and are allocated by an independent troncmaster, where the employer does not:

• control or influence the allocation system,

• decide how payments are distributed, or

• guarantee the amount of any tronc payments.

The root of the problem

Under HMRC rules, Student Loan deductions apply only to earnings that are liable to Class 1 NIC. Tronc payments allocated by an independent troncmaster are exempt from Class 1 NIC and, therefore, should not be subject to Student Loan repayments.

However, the Self-Assessment system treats the full P60 figure as if all of it were liable to Class 1 NIC when calculating Student Loan liability. It simply cannot identify which portion of the P60 reflects tronc payments that are exempt from Class 1 NIC. The same issue applies to benefits-in-kind that are exempt from Class 1 NIC.

The result

Any worker who files a Self-Assessment return, repays a Student Loan, and receives tronc payments that are exempt from Class 1 NIC will have Student Loan deductions incorrectly applied to their tronc income under the Self-Assessment system.

This happens regardless of whether tronc payments are processed through the employer’s PAYE scheme with salary or through a separate PAYE scheme operated by an independent troncmaster.

This issue does not occur under PAYE. It is specific to Self-Assessment.

HMRC’s published workaround

HMRC has acknowledged the problem and published guidance explaining how taxpayers must manually separate NIC able and non-NIC-able income when completing their return.

This workaround requires the taxpayer to follow three steps:

1. Deduct the non-NIC-able tronc payments from the P60 total that is entered in the “Pay from this employment” box.

2. Re enter the tronc income as a taxable benefit in the “Other benefits” section.

3. Include a short explanation in the “Additional information” box explaining why the figures have been adjusted and confirming that Student Loan deductions are only due on earnings liable to Class 1 NIC.

This is the only method currently available to prevent Self-Assessment from incorrectly applying Student Loan repayments to tronc income.

Why workers must follow the guidance

If a taxpayer enters the full P60 income without applying HMRC’s workaround, the Self-Assessment system will automatically treat all income as liable to Class 1 NIC. This will result in a Student Loan liability being calculated. If the tax return is filed on this basis, the taxpayer will be self-assessing that liability, which will then become due and payable.

HMRC has confirmed that work on a long-term systems fix is ongoing. Until that is implemented, the manual workaround remains the only option available to affected taxpayers.

Conclusion

This is a known and well documented limitation within HMRC’s systems. Any worker who:

• completes a Self-Assessment tax return,

• repays a Student Loan, and

• receives tronc income that is exempt from Class 1 NIC

must apply HMRC’s workaround when filing their return to ensure tronc payments are excluded from Student Loan calculations.

Failure to do so will result in incorrect and avoidable Student Loan deductions.

How we can help

This issue highlights why it is important for tronc payments to sit within a structure that is genuinely independent and compliant with HMRC’s NIC rules. Only tronc payments allocated by an independent troncmaster qualify for Class 1 NIC exemption, which is essential before any Self-Assessment adjustments can be made.

Buzzacott Troncmaster Services manages tronc arrangements so they remain independent, compliant and correctly governed. This gives workers confidence that their tronc income is NIC exempt and supported by a clear audit trail.

If you need help correcting a Self-Assessment entry or speaking to HMRC about Student Loan deductions, our Tax Disputes and Investigations team can provide support through our separate tax service. They work closely with individuals on issues like this and can guide you through the process.