Student loans are a great way to finance learning
when you’re low on cash, but the money has to be paid back at some point, and
if you don’t know how this works you could be in for a surprise if it gets
collected without your knowledge.
How repayments are made
Repayments of your student loan are taken from your
pay in the same way as PAYE and National Insurance contributions when your
income before taxes exceeds a certain threshold. This threshold is one of the
following
£303 per week if you are paid weekly
£1,316 per month if you are paid monthly, or
£15,795 per year.
How much is taken?
The rate for student loan deductions is 9% of
anything earned over the above thresholds.
For example, if you earn £1,750 in a month, you
subtract £1,316 giving an amount of £434, then you take 9% of £434 to give you
£39 as the amount that will be deducted from your income per month.
Other repayment examples
Income
before tax (£)
|
Monthly
Salary (£)
|
Monthly
repayment (£)
|
Up
to 15,795
|
1,316
|
0
|
16,000
|
1,333
|
1
|
21,000
|
1,750
|
39
|
24,000
|
2,000
|
61
|
27,000
|
2,250
|
84
|
30,000
|
2,500
|
106
|
What you can expect when your income changes
throughout the year
Because the repayments are taken in the same fashion
as PAYE, if your income rises or falls throughout the year, the amount of
student loan you pay back will alter to reflect this. This means if your income
drops sharply, you wont have to worry about an unaffordable payment on your
student loan.
Making payments even if below annual threshold
If you are under the annual threshold but have a
temporary increase in income, such as taking on an extra shift at work or a
bonus, you could have some of your student loan repaid if you exceed the weekly
or monthly threshold for that week or month.
If some money was taken for your loan in this
fashion, you can apply for a refund providing you are still below the annual
threshold at the end of the tax year.
Student loans and your tax return
If you are a sole trader, your student loan must be declared on your income tax return, failing to do this could result in HM Revenue and Customs issuing a penalty for an inaccurate tax return if you cannot provide a reasonable excuse.
So if you have a student loan, make sure to let us know and provide us with a copy of an up to date statement with your accounts so that we can ensure that your tax return will be accurate.
Student loans and your tax return
If you are a sole trader, your student loan must be declared on your income tax return, failing to do this could result in HM Revenue and Customs issuing a penalty for an inaccurate tax return if you cannot provide a reasonable excuse.
So if you have a student loan, make sure to let us know and provide us with a copy of an up to date statement with your accounts so that we can ensure that your tax return will be accurate.
I hope this has managed to shed some light on this
seldom mentioned subject, if you do have any queries regarding this, please do
not hesitate to give me a call.
Mark.
