Partner Rebecca Benneyworth Training Consultants
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Student loans and self assessment

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10th Jan 2010
Partner Rebecca Benneyworth Training Consultants
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One tricky aspect which is becoming more common in self assessment is dealing with student loans. Most loans for those now coming into the workforce are dealt with through the income contingent repayment scheme, and many former students are making their repayments through their pay packet, as most are employees. However, there are a number of situations where student loans crop up on self assessment returns.

Self employed

When an individual is self employed, they will be liable to make repayments through the self assessment system. The basic rules are fairly simple. There are no repayments due if the annual income is no more than £15,000 in a tax year, but payments are then due at a rate of 9% on the excess. For self employed students the income taken into account is the total income, including any investment income.

An individual is liable to make repayments from the April after his course finished, so those liable to make their first payments on the 2009 tax return will be graduates from July 2007. Those who graduated in July 2008 which is the first year for which students were required to borrow their tuition fees, bringing an average annual loan to around £6,000, will be liable to make repayments on the 2010 tax return. You must make sure that the relevant box on page 2 of the tax return is ticked to ensure that student loan repayments are included in the total tax calculated.

More than one employment

When students make repayments through their salary, the limit is applied on a pay period (monthly or weekly) basis rather than an annual basis, similar to NI contributions. Another similarity with NI is that the nil rate band of £15,000 applies to each employment to keep things simple for employers. The amounts that are deducted when an individual has two jobs are therefore correspondingly lower than if the individual had one job paying the total of the two salaries.

However, if for some reason this individual comes within self assessment, the correct student loan must be calculated, allowing only a single £15,000 annual limit, and normally resulting in additional payments falling due – in fact a maximum of £1,350 may have been underpaid as a result.

Investment income

Individuals who have made repayments through their salary but have other income which brings them within self assessment (such as investment income of more than £2,000 in a year) will be liable to 9% repayments on the total income for the tax year less the limit of £15,000. Payments may therefore be due on the additional income, and as a result of applying a pay interval threshold when earnings have fluctuated through the year.

Payments on account

The law characterises student loan repayments as tax liabilities, so calculation of payments on account, and particularly applications to reduce payments on account must take into account the student loan liabilities in addition to tax and NIC payable on self employed earnings.

Worth knowing

  • The current rate of interest is 0% (from 1 September 2009 to 31 August 2010)
  • From December 2009, those within the last 23 months of repaying their loan can opt out of payment through salary and choose payment by direct debit to prevent them from overpaying due to the slow communication inherent in the repayment system. The Student Loan Repayment company (which operates separately from the Student Loan Company) will contact affected individuals to notify them of this option. It will normally be beneficial to take this option, unless the individual is expecting a significant income cut.
     

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By chas01
11th Jan 2010 12:03

STUDENT LOANS

A new client left her employment during 2008/09 and her new P45 which of course is twice the size of the old versions does not show the amount of loan deducted.

We are awaiting details from the employer and cannot contact HMRC as the 64-8 has not yet been processed.

What joy!

Charles Stringer

 

 

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
11th Jan 2010 16:47

Charles

You may have tried this, but worth checking whether she can find her final payslip - it should show the information you need.

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By Anonymous
12th Jan 2010 09:39

Electing to pay via Direct Debit instead of PAYE

I've contacted the HR department regarding paying the last few installments directly to Student Loans company to avoid overpaying, and they still stand by the line they can only stop payments when HRMC tell them to.

Where can I point them to official documents that explain they can stop taking the money from my payslip?

Thanks

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
12th Jan 2010 10:17

Unfortunately

this has to be driven by the student loan company, who will contact you to agree it and then tell HMRC who will instruct your employer - your HR department is correct they can't do anything without being told by HMRC. Start by chasing the student loan repayment company. Their website is here.

Here's a phone number for repayment issues :

For Income Contingent Repayment (ICR) loans - if your course began during or after 1998:

Tel: 0845 0738 891 (open mon - fri from 8.00am to 5.30pm)

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By Huw Williams
14th Jan 2010 22:07

Student loan information from the Revenue

I am not sure if you will have any luck getting the information out the Revenue.  It is not tax, so they do not seem to record it anywhere.  I have asked them about a client and they simply could not help!

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By mikewhit
17th Jan 2010 12:18

Outside UK

If a graduate is working outside the UK (e.g in EU) and not subject to UK tax, is there any way they can arrange student loan repayment from their gross income - or from their net and have it grossed up like a charity donation ? Or is it entirely dependent on the country in question ...

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By John R
21st Jan 2010 10:03

Interim payments and student loans

Rebecca, HMRC state that student loan repayments are not to be included in the payments on account. See www.hmrc.gov.uk/manuals/sammanual/SAM121610.htm

 

 

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By Henry_8
22nd Jun 2020 14:53
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