As we explained in our Tax – the basics section, not everyone has to fill in a tax return each year. Common examples of when you do need to fill in one are: where you are self-employed; pay higher rates of tax; or have some other source of income which is not taxed before you receive it - for example, you rent out a property.
The collection of student loans also comes into the Self Assessment system. If you are required to complete a tax return, the form and the calculation also take into account your student loan repayments.
If HMRC do not send you a notice to complete a tax return, you do not have to fill one in just because you are repaying your student loan.
So, in the employee student loan repayments section above, we gave the example of Katrina having two jobs, in neither of which she earned over the £16,365 threshold. If she were required to complete a tax return, for example because she also does some self-employed work then her student loan repayments would be calculated accordingly.
Example – Katrina, continued (1)
Katrina has an income-based student loan. When she graduated, she could not find a full-time job so took on part-time work with Company A earning £12,500 a year. As she is not earning above the threshold, she does not have to make repayments.
In April 2013, she gets another part-time job for Company B, earning £5,000 a year. Note: Company B is not in any way related to Company A.
Even though her total earnings are now £17,500 a year, neither employer has to deduct student loan repayments because each employment is within the £16,365 threshold.
But she has to fill in a tax return for 2013/14 as she has also £2,000 of profits from freelance work. Her total earnings add up to £19,500 – that is, £12,500 from Company A + £5,000 from Company B and £2,000 profits from her freelance work.
This is £3,132 above the £16,365 student loan repayment threshold, so she has to pay 9% x £3,135, £282, in student loan repayments through her Self Assessment.
Other income, such as savings
If you have to fill in a tax return and you get more than £2,000 a year in ‘unearned’ income, this affects how much you have to repay. 'Unearned income' includes, for example, interest from savings or profits from letting out a property.
The important thing to note here is that the £2,000 is ‘all or nothing’. This means that if you get any unearned income of up to £2,000 a year, it is not taken into account at all; but as soon as you go over £2,000, the whole amount is taken into account.
Let’s carry on with our example:
Example – Katrina continued (2)
a) Katrina also has exactly £2,000 interest from her deposit in a savings account.
→ In her Self-Assessment, none of this is taken into account in calculating her student loan repayments. As above, her 2013/14 loan repayment is still £282.
But what happens if Katrina finds she has accrued an extra £1 of interest on her current account in 2013/14?
→ In her Self-Assessment, the whole £2,001 of unearned income is taken into account in calculating her student loan repayments. So now, she will pay an extra 9% x £2,001, £180.
When added to the £282 above, this makes her total 2013/14 student loan repayment £462.
Important – keep your payslips and other records
When filling in your tax return, you will need to include the total of any student loan repayments you have already made under PAYE. Also, although they usually get their information from HMRC, you might sometimes need to inform the Student Loans Company (SLC) direct of PAYE repayments you have made, for example, if there is a delay in passing information from HMRC to SLC.
We would recommend you always keep your payslips.
If you have a single job in a tax year, your P60 from your employer at the end of the year will show how much has been deducted in repayments.
But if you move from one job to another, the P45 your old employer gives you does not show the total deductions made in that employment. Your old employer will only have ticked a box on the P45 to indicate to your new employer that student loan repayments should continue being collected.
When you get to the end of the tax year, you will need to work out from the payslips from your old job how much your former employer deducted and add that figure to the amount shown on the P60 from your new employer.
Again, let’s illustrate this with an example.
Example – Dave
Dave does some freelance work designing websites, so he needs to fill in a tax return each year. But he also works part time for an employer – he changes jobs in August 2013.
His old employer deducted student loan repayments as follows:
April 2013 - repayment of £25
May 2013 - repayment of £22
June 2013 - repayment of £22
July 2013 - repayment of £26
In May 2014, his new employer gives him his P60 showing total student loan repayments of £213, but this figure does not include the amounts above from Dave’s old job.
When Dave completes his 2013/14 tax return, he has to add together the amounts deducted at both employments to find the total deductions to put on the form.
The total is £308 which is £25 + £22 + £22 + £26 + £213
The £308 deducted comes off the total student loan repayment he owes for the year.
If Dave had not kept his payslips, he should be able to contact his old employer to ask for the information. But it is better to keep the information in the first place to avoid having to track it down later. And he might have problems getting hold of the details if, for example, his old employer had gone out of business.
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Other Self-Assessment points to note
Due date for student loan repayments
Under Self Assessment, your student loan repayments are due on 31 January following the tax year end. So, for the tax year ending 5 April 2013, your payment will be due on 31 January 2014.
Student loan repayments are not part of any payments on account you are due to make under Self Assessment, nor do you need to take them into account if you are working out whether you can claim to reduce your payments on account.
Extra repayments direct to SLC
In addition to PAYE deductions and repayments through Self Assessment, you can make voluntary repayments direct to the SLC at any time. But if you do so, these payments will not reduce the amount that you have to pay under Self Assessment and should not be included on your tax return.
Nearing full repayment of your loan – avoiding paying too much
If you are in the situation where you think the amount due under the Self Assessment calculation is too much - that is, you will then be owed money by the SLC, you can apply to HMRC for an informal ‘stand over’. This is explained in the ‘overpayments’ section of HMRC’s leaflet CSL1 – Collection of student loans for SA Customers.
Payment plans – a word of caution
One facility HMRC offer for payment of all Self Assessment liabilities, including student loan repayments, is a regular direct debit known as a Budget Payment Plan (‘BPP’). This allows you to pay by instalment, subject to certain conditions.
For student loan borrowers repaying through Self Assessment, there is, however, a possible disincentive to taking up a BPP. As the effective date of repayment is treated as 31 January following the end of the tax year, your interest will still be clocking up on the outstanding student loan balance even though HMRC have your money early.
Example - Chas
Chas has a student loan. He started a new business in 2012/13 and his taxable profits were £20,000, so his tax bill for the year was £2,379. In addition, he had £1,116 Class 4 National Insurance contributions (‘NICs’) to pay. His student loan repayment was a further £378.
On top of that, he has to make payments on account (POAs) for 2013/14 of half of his tax and Class 4 NICs liability for 2012/13 on 31 January and 31 July 2014. Payments on account are not due on the student loan repayment.
The amounts he has to pay come as a bit of a shock to Chas, so he decides to start paying towards the amount he owes on 31 January by entering into a direct debit BPP with HMRC. Luckily he did his tax return early and his plan was set up in May 2013, allowing him nine months to spread the payment at £624 a month. Of this, £42 a month is his student loan repayment.
Let’s look at his total payments (not including Class 2 NICs paid separately by direct debit) in the table below:
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Class 4 NIC
31 January 2014
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- Balance for 2012/13
- 1st POA for 2013/14 - half of 2012/13 tax and NIC liability
- Split over nine months (May 2013 - Jan 2014)
31 July 2014
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- 2nd POA for 2013/14 - half of 2012/13 tax and NIC liability
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By paying in instalments under the BPP, his ‘tax’ bill is therefore cleared by 31 January 2014 and he can go on making regular payments towards his July payment on account if he wishes. HMRC do not give him interest even though he has paid early, but equally none is charged.
But when Chas gets his student loan statement, he will see that the £378 he has repaid is only taken off his loan balance at 31 January 2014, even though he parted with the money in instalments over the course of the preceding nine months. Interest is added to the student loan balance at the prevailing rate taking no account of the fact that he had paid the amount due.
So, what could Chas have done instead? Well, he might have considered putting his tax money aside in a separate interest-bearing bank account (perhaps using an Individual Savings Account, subject to certain limits, on which the interest is tax-free) and paying the balance in full on 31 January. But this does mean he would have to resist the temptation to draw on the funds in the meantime.
Unfortunately, Chas cannot instead pay the £42 a month straight to the SLC. If he were to do so, these would be treated as extra payments and he would then find an unwelcome surprise – that he still has to pay the £378 due under Self Assessment on 31 January 2014 anyway.
Penalties for late payment
Student loan repayments under Self Assessment are included with your overall tax and NIC bill. So if you are late paying, for example, you will face the same penalty for your student loan repayment as the rest of your bill. Elsewhere on this site, we provide some guidance on what to do if you are having difficulty paying.
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