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 and 2024/25? Let’s research the subject of repaying student loans and how this works for a contractor or small business owner. After several years of studying, you’ll eventually begin contracting in the UK 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 have to start repaying your loan. Therefore, when you repay each month, your contractor student loan balance (UK), which covers your previous courses, will be reduced. That’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 an HMRC Self Assessment student loan repayment (UK) via your personal tax return instead.

Therefore, what are the rules around repaying your UK student loan (self-employed or if running your own contractor limited company)? There are a few student loan (UK) aspects to think about regarding 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 an HMRC student loan repayment (Self Assessment tax return) for a UK business owner. In addition, you can make voluntary repayments against your previous student finances.

Besides this guide on contractor student loan repayment (self-employed), two other guides on this contractor website explain how your personal tax position can be affected:

Initial thoughts on contractor student loan repayments (UK) 

First thoughts when you pay back student loan 

Many UK contractors 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 your student loan if you’re self-employed or when you’re running your own company. This guide will look at when you make the student loan payments. We’ll also research how you can calculate your Self Assessment repayment against your student loan.

When do the repayments to HMRC 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 finish or leave your course and begin working in the 2024/25 tax year (from 6 April 2024 to 5 April 2025), you’ll start paying student loan amounts as of April 2025 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) collects this via the UK tax system if you’re no longer in higher education.

Plans & how do you repay student finance? 

How do you repay student loans (UK)? 

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

  • If you’re in employment, the student loan repayments are taken from your salary. You may ask if the student loan is pre or post-tax. The repayment is, in effect, taken from your gross salary, along with your income tax and NI.
  • Alternatively, if you’re self-employed or a UK contractor/company director and complete a UK tax return, you’ll make the repayments via your SA tax return. You can complete your tax return or appoint a suitable contractor accountant to look after this for you.

Which SLC repayment plan are you on? 

How and when you repay 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.

Student loan plan type & the repayment plans 

If we consider what student loan plan I am on, there are 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. You’ll be on plan 1, plan 2 or postgraduate in Wales. If you applied in Scotland, you’ll be on plan 4; in Northern Ireland, you’ll be on plan 1.

You can’t choose your repayment plan. In addition, you could be on different plans if you have more than one loan. A handy HMRC guide shows how to work with which repayment plan(s) you’re on. 

Repaying your student loan (UK) 

When do student loan repayments start?

You’ll only repay your student loan when your income exceeds your repayment plan’s student finance repayment threshold. The repayment threshold amounts change on 6 April every year.

The earliest you’ll start repaying and make 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. 

What are the 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, when calculating student loan repayments, you’ll start to repay your loan(s) if your income is over the following repayment thresholds (before tax and other deductions):

2023/24 2024/25
Student loan plan Weekly (£) Monthly (£) Annually (£) Weekly (£) Monthly (£) Annually (£)
Plan 1 423 1,834 22,015 480 2,083 24,990
Plan 2 524 2,274 27,295 525 2,274 27,295
Plan 4 531 2,305 27,660 604 2,616 31,395
Plan 5 480 2,083 25,000 481 2,083 25,000
Postgraduate loans (Master’s Loan or a Doctoral Loan) 403 1,750 21,000 404 1,750 21,000

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

Interest

Besides the loan itself, the Student Loans Company charge you interest. How much interest you’re charged depends on your plan type, as the interest rates differ between plans. Concerning your SLC repayments and the interest on these, you can find out more about this below:

Further updates on interest rates are shown below:

https://www.gov.uk/government/news/student-loans-interest-rates-and-repayment-threshold-announcement–4

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

More student loan considerations 

Further guidance on student finance 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.

If you don’t fully repay the plans, they are written off in the future. The details about this are 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 repayments occur 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.

Your SLC account & how can you make voluntary repayments? 

The Student Loan Company (SLC) is the organisation that administers student loan accounts. You can register with them to see your student loan account. Registered people can then `check my student loan balance’ to see what they owe. Besides checking their student loan balance, they can view each student loan amount they’ve repaid so far, as well as any interest.

When you repay student loans, you can make a voluntary repayment. This will then reduce your student loan balance (UK) accordingly. You can make extra repayments via your student online repayment account, which you can do by card, bank transfer, or cheque.

When does a student loan get written off?

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

A fundamental change is that new borrowers from September 2023 have their repayment term extended to 40 years. This is to ensure more students repay their loans in full. These new rules won’t affect students who started before September 2023.

What are the Student Loan Company’s contact details?

Please visit the HMRC website page if you’d like to contact the Student Loans Company in England. You can also call the Student Loans office on 0300 100 0607. 

Other thoughts

What should you consider when repaying student loans as a contractor with your own company?

Let’s assume you’re contracting through your own company and taking a higher salary above the relevant threshold in the above table. Your company must deduct the amount to pay for your student loan and pay these over via the PAYE system throughout the tax year, in addition to tax and national insurance. However, if you take a low salary below the threshold, are student loan repayments based on income from salary or dividend income, too?

If you’re contracting through your own company, you may typically take 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 must 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 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 self-employed.

Therefore, when contractors make a tax payment to HMRC, this will include Self Assessment student loan repayment. Once HMRC receives the Student Loans Company repayment, they’ll inform the SLC about how much you’ve 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 whether you may repay your student loan within the next two years. This is to help you avoid making a Self-Assessment student loan overpayment. If you’re getting close to settling this, a student finance overpayment may occur. HMRC will verify the position with SLC, who will confirm whether the figures exceed your loan balance.

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

Student loan repayments can sometimes be overlooked when completing your Self Assessment tax return. Therefore, it’s important to remember to include these. Finally, we will detail some common Self Assessment tax errors here.

Link to Contractor Advice UK group on

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

Published On: April 6th, 2024 / Categories: Self-Assessment /

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