We have had a number of cases recently where HMRC have rightly enquired into clients’ Self-Assessment Tax Returns because of omitted student loan repayments.

Loan Repayment via Paye or Self-Assessment

If you are employed and are paid through the PAYE system, your employer should automatically deduct any amounts due. However, if you are not employed and are instead self-employed or if your income comprises all non-PAYE income such as rental income or dividends, you need to report any student loan repayments as part of your Self-Assessment Tax Return submission and this is where the need to make loan repayments is sometimes overlooked.

Loan Repayment Start Time

The earliest you have to start repaying your student loan is the 6th April after you leave university or college. So, for example, if you graduated in 2018, your repayments will start on 6th April 2019. However, there are income thresholds which you must reach before you have to start repaying your loan (see below).

If you have only recently left university or college, you are more likely to be aware of your loan and your repayment responsibilities than if you finished studying many years ago. If your study was a while ago, for any number of reasons including low income (see below), you might not be quite so aware and could easily overlook your loan and repayment responsibilities.

How your student loans are repaid depends on when you started studying.

If you began studying before September 1998, you will have a mortgage style loan, also known as a fixed term loan and will be expected to pay this off in monthly instalments by direct debit. However, if you began studying in or after September 1998, you will have an income contingent loan, which does not involve flat monthly payments but is instead repaid through the tax system, either via PAYE or Self-Assessment.

Loan Plans

There are two types of repayment plan for income contingent loans (Plan 1 & Plan 2).

• Plan 1 applies, if you studied in England & Wales and started your studies before 1 September 2012 or studied outside England & Wales at any time.
• Plan 2 applies if you studied in England & Wales and started your studies on or after 1 September 2012.

Once you start work, you will need to start repaying your loan through the tax system. If you are employed, this will be via PAYE. The Student Loans Company uses your National Insurance number to keep track of the amount of money you owe money and advises HMRC to notify your employer when you start work and payments will be automatically deducted from your taxable earnings. If you work for yourself, or receive non-PAYE income, such as rental income or dividends, you will need to start repaying your loan through the tax system, via Self-Assessment. If you have both PAYE and non-PAYE income, repayments will be via Self-Assessment, with a credit for amounts already deducted via PAYE.

Amount of Loan Repayment

The amount you have to repay is calculated as 9% of your taxable income. However, you need to have a certain amount of income to trigger repayments.

• For Plan 1 student loans (so if you started your studies before 1st September 2012), repayments start when your income is £18,330 a year (or £1,527 a month or £352 a week).
• For Plan 2 student loans, repayments start when your income is £25,000 a year (or £2,083 a month or £480 a week).

Loan Write off

Wherever you studied in the UK, if you started your studies before 1st September 2006, any balance remaining when you reach age 65 is written off. If you started your course on or after 1st September 2006 and have a Plan 1 loan, any balance of your loan is usually written off after 25 years. The exception is Scotland, where the period before the loan is written off is 35 years. If you have a Plan 2 loan, any outstanding balance is usually written off after 30 years.

Blog written by Mathew Gillard