Student Loan Repayments For Company Directors and the Self Employed

If you have a student loan, and have recently become a company director or self employed, then you maybe wondering how student loan repayments work when you may only be taking a small salary, if at all, and the rest as drawings or dividends.

In this blog, we take a look at how student loan repayments work in these instances.

At what point do I need to start repaying my loan?

Regardless of whether your employed, self employed, or a director of your own limited company, everyone has to repay their student loan when their total income exceeds their relevant threshold. The threshold is dependant on whether you have a plan 1 or plan 2 loan.

Plan 1 Loan

You will have a Plan 1 loan if a) you live in England/Wales and took your loan out before 1st September2012 or b) took out your loan at any time in Scotland/Northern Island.
The threshold for Plan 1 loans for 20/21 is £19,390.

Plan 2 Loan

You will have a Plan 2 loan if you took out your loan (excluding Postgraduate Loans) in England/Wales on or after 1st September 2012.

The threshold for Plan 2 loans for 20/21 is £26,575.

What will I have to pay?

For both Plan 1 and Plan 2 loans, you will be required to repay 9% of your total income that exceeds your relevant threshold.

So how does it work if I’m a company director or self employed?

For most people in permanent, PAYE employment, who have no other personal income, student loan repayments will be deducted from monthly pay and paid to HMRC by your employer. HMRC then passes these payments over to the student loans company.

However, if you are self employed, it is likely that you will not be receiving a salary. Therefore, when yourself assessment return for the period is calculated, you will need to declare that you have a student loan. The 9% deduction will then be calculated on your total income that exceeds your relevant threshold and will be payable to HMRC in additional to your self assessment tax liability for the year.

If you are a company director, it is likely that, for tax planning purposes, you will be withdrawing a small salary (under the student loan repayment threshold) and then withdrawing dividends from the company. Therefore, even though your salary will be below the threshold, your dividends will need to be taken into account, so, just like self employed workers, you will also need to declare this on your self assessment return for the year and the deduction will be made based on your total income (including dividends) for the period.

It is also worth bearing in mind that even if you aren’t a company director or self employed, and are permanently employed, if you receive personal income from any other source (such as rental income, or dividends from other companies), the you will also need to make additional student loan repayments based on this additional income when you prepare your self assessment return.

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