By PaperRocket Accounting, Apr 11 2019 08:57AM
When you’re in the world of permanent employment, student loan repayments are as ‘simple’ as having the deduction made from your payslip each month. But, if you’re a company director, or self employed, you may not be taking a salary over the relevant student loan deduction threshold. Unfortunately though, this doesn’t mean that you escape the deductions.
When do I have to start repaying my student loan?
Regardless of whether your employed, self employed, or a director of your own limited company, everyone has to repay their student loan when their total income exceeds their relevant threshold. The threshold is dependant on whether you have a plan 1 or plan 2 loan. If you aren’t sure which plan loan you have, you can find out here.
Plan 1 Loan
You will have a Plan 1 loan if a) you live in England/Wales and took your loan out before 1st September 2012 or b) took out your loan at any time in Scotland/Northern Island.
The threshold for Plan 1 loans for 19/20 is £18,935.
Plan 2 Loan
You will have a Plan 2 loan if you took out your loan (excluding Postgraduate Loans) in England/Wales on or after 1st September 2012.
The threshold for Plan 2 loans for 19/20 is £25,725.
What will I have to pay?
For both Plan 1 and Plan 2 loans, you will be required to repay 9% of your total income that exceeds your relevant threshold.
How does repayment differ between the employed, self employed and company directors?
If your only personal income in a tax year is via permanent employment, then your student loan repayments will be deducted from your monthly pay and paid to HMRC by your employer. HMRC then passes these payments over to the student loans company.
However, if you are self employed, it is likely that you will not be receiving a salary. Therefore, when your self assessment return for the period is calculated, you will need to declare that you have a student loan. The 9% deduction will then be calculated on your total income that exceeds your relevant threshold and will be payable to HMRC in additional to your self assessment tax liability for the year.
If you are a company director, it is likely that, for tax planning purposes, you will be withdrawing a small salary (under the student loan repayment threshold) and then withdrawing dividends from the company. Therefore, even though your salary will be below the threshold, your dividends will need to be taken into account, so, just like self employed workers, you will also need to declare this on your self assessment return for the year and the deduction will be made based on your total income (including dividends) for the period.
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