Student loan repayments and Self Assessment

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Introduction 

How do student loan repayments work for a UK limited company contractor in 2023/24? Let’s research the subject of repaying student loans and how this works for a contractor or small business owner. When you’ve spent several years studying, you’ll eventually begin UK contracting in your specialist industry. Indeed, when you’re working, at some point in the future and even with the current cost of living crisis, you may need to start repaying your loan. Therefore, when you start to repay each month, it’ll begin to reduce your contractor student loan balance (UK) which covers your previous courses. Basically, this’ll begin once you earn over a certain amount. However, when you run your own company and your contractor salary isn’t over the level where you’ll make a student loan payment via your salary, you’ll make a HMRC Self Assessment student loan repayment (UK) via your personal tax return instead.

Therefore, what’s the rules around repaying your UK student loan (self-employed or if running your own contractor limited company)? Basically, there’s a few things to consider regarding paying back student loan (UK) in connection with a self-employed student loan repayment. This includes when your payments to the Student Loans company (SLC) for your previous tuition fees start. Furthermore, you should consider how you’ll repay tuition fee loans if you’re a business owner and have a `low’ salary. Indeed, this involves researching how to make a HMRC student loan repayment (Self Assessment tax return) for a UK business owner. Also, there’s an option to make voluntary repayments against your previous student finance.

Besides this guide on contractor student loan repayment (self-employed), two other guides on this website that explain how your UK personal tax position can be affected are the UK child benefit tax charge and the UK marriage allowance transfer.

Initial thoughts -contractor student loan repayments (UK) 

What to think about first when you pay back student loan 

Many UK contractors will have amounts owing on their student loan balance (UK) when they start contracting and running their own company. Therefore, if you’re not a regular employee, let’s look at how to pay student loan if self-employed or when you’re running your own company. In this guide, we’ll look at when you make the student loan payments. We’ll also research how you can you calculate what your Self Assessment repayment will be against your student loan.

When the HMRC student loan repayments (UK) start

Your loan repayments for your student loan (UK) start in April after the further education in your final academic year is complete. Therefore, if you begin working in the 2023/24 tax year (this runs from 6 April 2023 to 5 April 2024) you’ll start paying student loan amounts as from April 2023, if you meet the repayment criteria (please see later in this guide). Repaying your loan is compulsory when your income is above the student loan payment threshold where repayments are due. HM Revenue & Customs (HMRC) are responsible for collecting this via the UK tax system if you’re now no longer in higher education.

Common questions

For those who complete their studies, they’ll start to work in their chosen career. There are those too who work for themselves, such as contractors. Many will have questions regarding repaying student loan amounts. Therefore, such questions around when you start to repay student loan include:

  • How is student finance paid back?
  • When do you start paying back student loan?
  • How much do you earn before paying back student loan (UK)?
  • How does a student loan work?
  • Which student loan plan am I on?
  • How are student loan repayments calculated?
  • How much student loan do I pay back?
  • When do you pay back student loan?
  • How much student loan do I owe?
  • How to pay your student loan online?

In this guide, we will look at UK student loans. We’ll also consider when you begin to make a student loans repayment (UK), as a business owner or employee.

Plans and how student loan repayments work 

How to repay student loan (UK) 

How you repay your student loan balance (UK) depends on whether you’re in employment or self-employment. In both cases, your earnings are income taxable. Also, you’ll start to repay your student loans if you’re earning above the level where payments become due:

  • If you’re in employment, the amounts will be taken from your salary. You may ask is student loan pre or post tax. The repayment will be taken from your gross salary along with your income tax.
  • Alternatively, if you’re in self-employment or are a UK contractor / company director and complete a UK tax return, you’ll make Self Assessment student loan repayments via your SA tax return. In terms of completing your tax return, you can do this yourself or appoint a good contractor accountant to look after this for you.

Which SLC repayment plan are you on? 

How and when you repay your loan to start repaying your student loan balance (UK) will depend on when you started your course.

How much you repay depends on your income, not what you borrow. You should let your employer know which repayment plan applies to you, so they take the right amount.

The student loan plan type -repayment plans 

If we consider, what student loan plan am I on, there’s five student loan plans:

  • Plan 1 student loan.
  • Plan 2 student loan.
  • Plan 4 student loan.
  • Plan 5 student loan.
  • Postgraduate Loan.

If you applied to Student Finance England, you’ll be on either plan 1, plan 2, plan 5 or Postgraduate. In Wales, you’ll be on plan1, plan 2 or postgraduate. If you applied in Scotland, you’ll be on plan 4 and in Northern Ireland, you’ll be in plan 1.

You cannot choose the repayment plan you’re on. In addition, you could be on different plans if you’ve more than one loan. Basically, there’s a very useful HMRC guide that shows how to work which repayment plan(s) you are on.

Repaying your student loan (UK) 

When you start repaying 

You’ll only repay your student loan when your income is over the student finance repayment threshold amount for your repayment plan. The threshold amounts change on 6 April every year.

The earliest you’ll start making a student finance repayment is either:

  • The April after you leave your course.
  • The April 4 years after the course started if your course is longer than four years, for example, if you’re studying part-time or doing a Postgraduate Doctoral course.
  • April 2026 if you’re on plan 5.

Your SLC repayments automatically stop if either:

  • You stop working.
  • Your income goes below the student loan threshold. 

Income levels before student loan repayments (UK) start 

In terms of repaying your student loan, you’ll repay when you have earnings over the threshold. Therefore, you’ll start to repay your loan(s) if your income is over the following repayment thresholds (before tax and other deductions):

Student loan plan Weekly (£) Monthly (£) Annually (£)
Plan 1 423 1,834 22,015
Plan 2 524 2,274 27,295
Plan 4 531 2,305 27,660
Plan 5 480 2,083 25,000
Postgraduate loans (Master’s Loan or a Doctoral Loan) 403 1,750 21,000

Therefore, you can use the above student loans repayment threshold tables and the HMRC website to help work out student loan repayments. What’s more, you’ll only start incurring student loan deductions and repaying your loan where your current salary exceeds the relevant threshold for paying back student loan.

Interest

Besides the loan itself, the student loans company will also charge you interest. How much interest you’re charged depends which plan type you’re on as the interest rates differ between the different plans. Basically, these are currently:

Student loan plan Interest rate
Plan 1 5.0%
Plan 2 6.9%
Plan 4 5.0%
Plan 5 Based on Retail Price Index
Postgraduate 6.9%

In relation to your SLC repayments and the interest on these, you can find out more about this below:

  1. How student loan plan 1 loan interest is calculated and interest rates for previous years.
  2. How student loan plan 2 loan interest is calculated and interest rates for previous years.
  3. How plan 4 loan interest is calculated and interest rates for previous years.
  4. How Postgraduate Loan interest is calculated and interest rates for previous years.

In addition, you can also look online for either a student loan repayment calculator based on salary or student loan self-employed calculator. These’ll give you an idea of your future monthly repayments.

Additional student loan areas to consider 

Further guidance around student loan repayments 

The complete guide for the HMRC repayments and interest can be found here. In addition, you can check which plan you’re on by using the government digital service and signing in to your online repayment account. Once you log in, you can download your ‘active plan type letter’.

The next step is to ask your employer which plan they have you on.

If it differs from the plan in your letter, please show it to your employer so they can update your payroll details.

You don’t make any repayments if you earn less than the repayment thresholds.

The plans are written off in the future if you don’t fully repay them. You can check the details about this in the link above.

If you’re an employee, your employer will deduct the amount of your student finance repayments at the above rate through the PAYE system. The student loans (UK) repayment take place every week or every month, depending on when you receive your pay. You can see how much you’ve paid off from your student loan on your payslips or annual P60 form.

Student loan repayments -SLC account and voluntary repayments 

The Student Loan Company (SLC) are the organisation that administers student loan accounts and repayment. You can register with them so that you can see your student loan account. Someone who registers can then `check my student loan balance’ to see what they owe. Besides being able to check student loan balance, they can also view each student loan amount they’ve repaid so far as well as any interest.

When you’re paying back student loans, you can also choose to make a student loan voluntary repayment against your student loan balance (UK). Basically, you can make any extra repayments in your student online repayment account either by card, bank transfer or cheque.

When does student loan get written off

This depends on your plan; however, if you’re a student from England or Wales, your Postgraduate Loan will be written off 30 years after the April you were first due to repay. Please see this HMRC page for further details.

A key change is new borrowers from September 2023 will have their repayment term extended to 40 years. Basically, this is to ensure more students repay their loan in full. Students who started before September 2023 won’t be affected by these new rules.

Student loan company contact details

If you’d like to get in touch with the student loans company in England, please visit the HMRC website page for this. In addition, you can also call the Student Loans office number on 0300 100 0607.

Other considerations

Student loan repayments when you contract through your own company

Let’s assume you’re contracting through your own company and taking a higher salary above the relevant UK student loan repayment threshold. Besides deducting tax and National Insurance, your company will need to deduct the amount to pay for your student loan and pay these over via the PAYE system over the tax year.

If you’re contracting through your own company, you may typically be taking a low salary around the NI threshold. As part of your drawings from your company, you’ll be taking the rest of your income as dividends. Therefore, your salary would be beneath the threshold where paying back student finance applies. However, if your overall total income is above the relevant threshold, you need to make your SLC repayment via your Self Assessment Tax Return.

Self Assessment Tax Return -student loan Self Assessment 

The Self Assessment Tax Return asks you to complete and confirm your student loan status.

If your total relevant income (gross income less any reliefs) is above the annual threshold, you’ll make an SLC repayment via your tax return. The student loan repayment percentage is 9% on any income above the threshold, through your Self Assessment tax bill.

The above applies to individuals whose income in the main isn’t taxable at source, such as dividends for company directors or profits for self-employment individuals. Therefore, limited company contractors will make their repayment amount for student loans via their SA tax return. Likewise, you’ll make self-employed student loan repayments via your tax return if you’re in self-employment.

Therefore, when contractors make a tax payment to HMRC, this’ll include Self Assessment student loan repayment. Once HMRC receive the Student Loans Company repayment, they’ll inform the SLC about much you have paid. They’ll then credit your account with the SLC repayment amount, and update your student finance balance accordingly.

Final thoughts

The SA Tax Return asks you to confirm if you think you may repay your student loan within the next two years. The reason for this is to help you avoid making a Self Assessment student loan overpayment. It may be the case that a student finance overpayment occurs if you’re getting close to settling this. HMRC will verify the position with SLC, who’ll confirm if the actual figures exceed your loan balance or not.

If you might overpay your student loan balance (UK), we recommend that you file your SA Tax Return early. Doing this allows the verification process to take place. If you file after 1 November, HMRC cannot guarantee this’ll happen before the tax return filing deadline of 31 January. As a result, you may then have the task of chasing up the overpayment.

Sometimes, you can overlook student loan repayments when you complete your Self Assessment tax return. Therefore, it’s important to remember to include these. Finally, here we detail some common Self Assessment Tax errors.

Link to Contractor Advice UK group on

LinkedIn    https://www.linkedin.com/groups/4660081/

Published On: January 4th, 2024 / Categories: Self-Assessment /

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