Student loan and self assessment

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I've hit a bit of a wall here.

I have a client who has two jobs. One over the student loan threashold and one under. Deductions have been made correctly on the job over the threshold and none on the second. I've had to do a tax return for this person this year to close down their self employment. Zero profit from self employment. 

The tax calculation is triggering a student loan bill for the second job. 

I've been getting mixed information from the HMRC guidence. 

My question is, does the need to do a tax return change the method of calculation for student loans from "per employment" to "total income (combined) If so what is the procedure for this? If the client didnt do a tax return there would be no liability.

Any help would be much appreciated.

 

 

Replies (28)

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DougScott
By Dougscott
12th Apr 2023 20:26

If the client didn't do a tax return then they would underpay student loan repayments is what you mean! Of course all taxable income must be added together and anything over the repayment threshold is liable.

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Replying to Dougscott:
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By devonn
12th Apr 2023 20:45

Student loans are calculated on individual employment. Therefore if you had two jobs both at 25,000 each, you wouldn’t pay any student loan. However, if you did a tax return, it would calculate the student loan on the 50,000 less the threshold. This doesn’t seem right to me. As far as my clients employers are concerned, they have deducted the correct amount of student loan.

Do you understand the point I’m trying to make?

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Replying to devonn:
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By Hugo Fair
12th Apr 2023 23:13

What you've failed to realise is that:
* client's employers .. "have deducted the correct amount of student loan";
is not the same as saying that client has paid the correct amount of SL repayments.

[This subtle distinction can apply with Tax and NIC calcs as I'm sure you know].

It is an increasingly common misconception that when an ER fully complies with PAYE then this means that the EE has met all their Tax/NI (or in this case SL) obligations.
Not so - PAYE is merely a 'reasonably accurate' method of collecting deductions throughout the tax year that will approximate, at Y-E, to the correct figures for the whole tax year.
Any discrepancy at Y-E is still due, whether or not HMRC manage to notice (which is where the SATR enters the picture).

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By Not Anonymous
12th Apr 2023 21:05

Nothing seems wrong.

Was the client trading with turnover above £1k in 2022-23?

If not could you try and get HMRC to withdraw the return?

Maybe not quite what that facility was intended for but it might do the job here?

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By doubletrouble
12th Apr 2023 21:10

Can you not just phone HMRC and ask them to withdraw the tax return, I have done this a few times, that way it should not affect the Student Loan.

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Replying to doubletrouble:
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By devonn
12th Apr 2023 21:15

Good point! That might work.

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By devonn
12th Apr 2023 21:14

Zero trading. But they didn’t tell me or respond to any of my calls until after 31st of jan so it’s all gone in late. I would have just contacted them early if they’d communicated.

Next year they won’t be doing a tax return. Does this mean they’ll be underpaying student loan every year moving forward as it’s only being deducted on the job over the threshold?

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Replying to devonn:
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By petestar1969
17th Apr 2023 11:56

Hmm, I though that everyone had to do a tax return if they owed HMRC anything that wasn't taken correctly at source? So your client should be doing tax returns every year regardless of self-employment....

They have a need to self-assess their income and tax/NIC/SL liabilities, clue's in the name of the tax return....

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Replying to petestar1969:
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By richard thomas
17th Apr 2023 12:06

You thought wrong then. Even HMRC don't think that.

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Replying to petestar1969:
Stepurhan
By stepurhan
19th Apr 2023 22:11

petestar1969 wrote:

Hmm, I though that everyone had to do a tax return if they owed HMRC anything that wasn't taken correctly at source?


Student loans might be collected through tax returns, but they are not "owed to HMRC".
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Replying to stepurhan:
By SteveHa
20th Apr 2023 12:59

Not just that, but conflating a requirement to submit a Tax Return (TMA S8) with a requirement to notify (S7) doesn't help anyone except HMRC.

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By doubletrouble
12th Apr 2023 21:19

I thought if you had 2 jobs you only paid Student Loan repayments on both if they were both over the threshold, if only one was then you only pay on that one.

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Replying to doubletrouble:
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By doubletrouble
12th Apr 2023 21:22

Unless you submit a tax return of course!

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Replying to doubletrouble:
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By devonn
12th Apr 2023 21:22

Exactly. That’s why I’m confused why the tax return is triggering it on both. Even when one is under the threshold.

I think this is a silly rule though. You could earn 60k over 3 jobs and repay nothing but earn 30k in one employment and have deductions. Craziness.

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Replying to devonn:
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By rmillaree
13th Apr 2023 08:19

"Exactly. That’s why I’m confused why the tax return is triggering it on both. Even when one is under the threshold."

Why would you be confused - there is nothing unfair or strange here - note there is only one income figure calculated here overall that matters.

If person A has one job earning 30k pa no sa they pay x amount of student loan back.
Person B in your example who has two jobs and earns 30k pand does sa return pays exactly the same - just some of it via sa. The adjustment on the sa return ensures there is parity here.

The one who does score as you say is the person who has an extra job no sa and pays less back than the two examples above - presumably they are not worth the admin hassle of chasing manually (or bad publicity let taxpayer pick up the bil in 25 years).

Dont forget to check for pension deductions from net pay - from memory they may reduce student loan tax charge - not sure how many accountants ignore the pension payments when clients are known not to be higher rate taxpayers.

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By Not Anonymous
12th Apr 2023 21:41

Like the silly rule where a couple with kids where one earns £60k and the other £0 means one has to repay 100% of the Child Benefit

But if each earned £45k they would 50% more (gross) income and pay 100% less HICBC!

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Replying to Not Anonymous:
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By devonn
12th Apr 2023 21:51

Completely agree.

So my question is, is the student loan “bill” due and correct. Or is this something that can be challenged? Aside from retracting the tax return?

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Replying to devonn:
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By Not Anonymous
12th Apr 2023 21:55

Not the legislation but usually a reputable source.

Look at he example of Katrina

https://www.litrg.org.uk/tax-guides/students/student-loans/plan-1-studen...

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Replying to Not Anonymous:
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By devonn
12th Apr 2023 22:04

That basically answers my question. If the tax return is to be left in place the bill is correct and payable. If I retract the return it becomes not due.

Thank you :)

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Replying to devonn:
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By Hugo Fair
12th Apr 2023 23:08

Weird ... but (according to HMRC) true.

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Replying to Hugo Fair:
DougScott
By Dougscott
13th Apr 2023 08:17

Hugo Fair wrote:

Weird ... but (according to HMRC) true.

Well that's also a new one on me! Of course it might be in your clients best interests to pay the amount due as the interest rate is so high.....

Last year a client's self-assessment showed a large amount of student loan capital and interest due even though she had a small student loan of about £5000. As she had plenty of savings I advised her to repay the loan so that we could amend the return to zero for the calculated loan repayment and say in the white space that the loan had been paid off. This saved her about £600. (This scenario is included in the Katrina guidance).

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Replying to devonn:
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By frankfx
13th Apr 2023 17:08

If you succeed will client share savings with you via a bill that you promptly raise while the tears of gratitude are in full flow?

At least the Exchequer will pocket some VAT
and the tax that you suffer.

Some of the revenue may be directed to early years child minding costs

Which may help your client's children, if any, with their early development.

Just a thought.

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By richard thomas
13th Apr 2023 15:57

The law on the forced repayment of student (and post-graduate) loans to HMRC acting as an agent of the Student Loan Company (SLC) is a Schrödinger’s cat – in relation to employments it is based on Class 1 NICs and in relation to all income including income from employments it is based on income tax, but only (and this is massively important) where a return of total income is required.

Where income from an employment is concerned, the deduction is a withholding based on simple calculations like Class 1 NICs, and is a deduction from payments of earnings determined in accordance with the Class 1 NICs law in SI 2001/1004 (see regulation 41 of the student loan regulations), and there is no question of a reconciliation, P800s, repayments, overpayments or simple assessments – at least no question of any mechanism for dealing with any that might arise. A person who is within the PAYE system but not required to make a tax return has no further obligation to make payments to the SLC, even in relation to benefits in kind.

That means that the statement by dougscott at 20:26 yesterday is absolutely wrong, and the OP’s reply (20:45) is correct. I take the OP there where they state “it doesn’t seem right to me” to be saying that the system is not logical or fair.

But it has to be borne in mind that a person may make a repayment of a student loan directly to the SLC at any time and in any amount or may choose not to make any voluntary repayment at all, because without the tax system, the loan is hardly a loan at all. It is, without the tax system, a non-recourse loan, a sort normally to be found in dodgy avoidance schemes like many film schemes as a means of leveraging a tax deduction without paying the necessary costs. The tax system comes into it because left to themselves most former students starting their careers outside the groves of academe would put voluntary repayments of an unenforceable student loan at the bottom of their “must pay” list. This would make the SLC needing government payouts to survive, so the tax system was brought in (by Gordon Brown in one of his any complifications) to at least get the SLC’s cash flow looking a bit healthier.

Faced with the decision to do this there were policy choices to be made, and they had to be made in the context of the unique UK tax system which chooses not to require the majority of people to make a return of total income, but to rely on the PAYE system to collect the amount of tax chargeable on that majority. The context also suggested, more so in 2000 (when the current rules date from) than today, that the majority of people starting out on careers were employed and within the PAYE-only part of the system. A minority would start as self-employed and indeed probably more may become self-employed as time went on. For them, those required by HMRC action to make a return, the obvious thing is to base the repayment on total income less the threshold and that is what is done (in general terms).

For the employed not making a tax return the position of most employees at the turn of the millennium was that they had one full-time employment. Using a NICs type system for them was (a) simpler than PAYE in its full glory, with tax tables, reconciliations etc, (b) likely to cover the majority of employees and of their income. And it does work for the majority, save that in cases where a person has two employments, independent of each other (the student loan system uses the NICs aggregation rules as well), the system only works at all if at least one amount of earnings is over the threshold and will not collect all the repayment due under the rules. It is of course no skin off HMRC’s nose if the system does not collect the amount it would collect if it was always based on total income – the only loser is the SLC, as it’s unlikely the employee will make voluntary repayments to cover the whole.

But if the SLC cared (they will of course be getting interest on the amount not repaid) it is difficult to see what policy option HMRC would be prepared to offer them, without making the system much more complicated or requiring everyone with a student loan outstanding to make a return.

But of course there are people who are both within PAYE and self-assessment. They are mostly the higher paid or those who have a trade or business and an employment or pension. They fall into both systems for student loan repayments and when making their student loan self-assessment (a different thing from the income tax/CGT self-assessment) they can deduct the repayments made to HMRC through the PAYE rules as they apply the student loan repayment calculations to (Class 1 defined) earnings from employment (Regulation 31(1) of the student loan regulations).

I agree that the person who goes from PAYE only to SA may pay more in student loan repayments than they would have done if they remained PAYE only, But the person who as here has two lots of earnings and makes repayments by reference to only one of them is reaping the benefit of a policy which prizes simplicity over equity.

As to the position of the client in the OP I don’t quite follow the statement “I've had to do a tax return for this person this year to close down their self employment.”

This rather suggests that “doing a tax return” is voluntary but was required in this case by the exigencies of the client’s position. Was the client not already registered for SA? If yes, wouldn’t they have received a notice to file, so why was it necessary to apparently take special steps to notify cessation by fling a return?

If the client was not registered for SA, the only liability they had was (possibly) to notify liability within 6 months of the end of the year in which the trade started and to notify the fact of starting for Class 2 NIC when they started. If the profits of the trade were less than £1000 there was no need to notify liability to income tax. If the zero profits continued until the trade ceased (if it ever started) the only liability is to notify cessation for Class 2 purposes.

I am well aware that HMRC conflate notifying liability to Class 2 with notifying income tax liability and their own criteria for issuing notices to file, and in practical terms it is difficult to get them to understand.

But like others I think your remedy is section 8B TMA – getting HMRC to withdraw the notice to file, assuming that the return has not been filed as that scuppers the possibility, unless you can persuade them of the justice of the client’s case.

But don’t forget, or let the client forget, Dougscott’s last post (at 08:17 today).

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Replying to richard thomas:
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By devonn
13th Apr 2023 17:33

Thank you for that interesting and insightful post. In response to your query about my client doing a tax return. Last year they were required to do a tax return as they had self-employment trading / profits. (over the 1k) Unfortunately in this current year they didn’t advise me that they had stopped trading at the end of the last tax year, until after the 31st of January deadline, at which point they received a fine despite me trying to contact them throughout the year. It was past the filing deadline and I prepared a tax return with a cessation of self-employment. I’m not sure if I could’ve applied to have the tax return withdrawn when it was so late in the day, with a fine attached. Either way the tax return has been filed and the student loan company have confirmed the amount is due. I am going to advise them that they should clear the student loan as soon as possible due to the high interest rates. So not a bad thing to be paying a big lump off.

I really appreciate all the help, this has been a really interesting topic that I was not fully up to date with.

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Replying to devonn:
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By More unearned luck
19th Apr 2023 19:05

"I’m not sure if I could’ve applied to have the tax return withdrawn when it was so late in the day".

I have no statistics to back up what I'm about to say, but I think that the majority or, at least, a significant minority, of requests to HMRC to withdraw NTLs are prompted by receipt of the LFP notice. The deadline for making such requests is two years after the end of the yoa or longer if HMRC agree that the circumstances are exceptional. So it would not have been late in the day.

"I am going to advise them that they should clear the student loan as soon as possible due to the high interest rates"

If a student loan was really a loan (I don't think that it is) then I wonder if you are straying into giving investment advice?

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Replying to richard thomas:
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By Hugo Fair
13th Apr 2023 17:58

A wonderfully clear exposition on the history, the (quasi-)logic of evolving changes and the current status.
I'd love to think that it was only my restricted (single digit) typing that preventing me from serving up something similar, but recognise mastery in communication when I read it!

I'm never sure which annoys me more ... the general taxpayer's assumption that any earnings received under PAYE have been 'completely dealt with' - or HMRC's willingness to make up on the hoof a view as to when a return is or is not needed.
[Actually I do know - it's obviously the latter, but the typical taxpayer's lack of understanding of PAYE fundamentals astounds me (they're generally quick off the mark when trying to get to grips with other deductions being taken from them)].

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Replying to Hugo Fair:
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By DJKL
19th Apr 2023 20:48

Wait until you get into the joys of overseas earnings , non residence and student loans with flat rate loan repayments depending upon which country one is resident within, where you can either tell them what you did earn and pay accordingly or not tell them and pay a flat rate repayment based on country of residence (My son had these to jump through when he moved to contracting in Frankfurt but the best solution for him was to pay it all down asap as it was all going to be repayable anyway given his earnings and as he earned virtually nothing on his bank deposits best option was clear the decks before he turned 30)

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Replying to DJKL:
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By Hugo Fair
19th Apr 2023 22:57

Lucky (though no doubt well-deserved) to have had such an option ... which is entirely in line with the way I was brought up - as if I'd had Polonius for a father:

Hamlet, Act 1 Scene 3 - "Neither a borrower nor a lender be"; but also:
"Give every man thy ear but few thy voice";
"borrowing dulls the edge of husbandry";
"This above all: to thine own self be true".

May he stride unfettered into his 30s!

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