Student Loans

[alert style=”info”]Clients who require any assistance with putting funds aside to prepare for student loan repayments should contact their Tax and Account Management team as soon as possible.[/alert]

Since April 2000 HMRC are responsible for collecting the repayments on behalf of the Students Loan Company on Income Contingent Student Loans taken out after August 1998.

Key points

  • Loans are collected from the April after you finish or leave a higher education course.
  • The repayments only start when your income reaches £18,330 on Plan 1 and Student loan limit 2 on Plan 2
  • If your income is over £18,330 or student loan limit 2 on Plan 2 you will pay 9% on the excess per annum.
  • Plan 1 is for English and Welsh students who started studies before 01 September 2012 and all Scottish and Northern Irish Students. You start repaying when you earn over £18,330.
  • Plan 2 is for English and Welsh students who started after 01 September You start repaying when you earn over £25,000.
  • In the vast majority of cases the repayments are collected through the PAYE system by an employer.
  • If you are self-employed, or a self-assessment taxpayer, the repayments are collected annually through your annual Self-Assessment Tax Return.
  • Unearned income (dividends & interest) is only taken into account in calculating your loan repayments if your total unearned income exceeds £2,000.

Note the same Income Tax rules and obligations that apply to SA customers also apply to SA Student Loan borrowers and if you carelessly or deliberately submit an incorrect return you may have to pay interest, a surcharge and penalties.

How it works

If you have a Student Loan for which payments should be made this will no longer be deducted via PAYE, the amount due will now be calculated through your Self-Assessment Tax Return on a yearly basis payable the following January to HMRC.

For the current tax year to 5 April 2017 if your gross income is over £18,330 or student loan limit 2 any income over that amount requires a 9% payment relating to Student Loan.

For example, if you are on plan 1:

If your gross income is £40,000 deduct the exempt amount of £18,330 which will leave £22,505  times by a rate of 9% = £2,025.45.
£2,025.45 will be due to HMRC payable by 31 January 2018.

  • This example was purely for Student Loan calculations and not for personal income tax which may be due in addition to the Student Loan amount depending on your Gross income.
  • This liability is your personal liability and therefore should not be paid from your business bank account.
  • If the example above was your scenario the amount to withhold from your personal funds for Student Loan each month would be £168.78.
  • Please note that if you make voluntary contributions to the Student Loan company (i.e. say every month) the amount calculated above of £2,025.45 would still be due and the voluntary contributions you make will not be deducted from the amount due above.