Most people are familiar with the basics surrounding the student loan repayment system and the normal course of action is generally to see repayments made through the payroll for the individual concerned.
However, for those individuals who are self-employed repayments will instead be made under the self-assessment tax system and for those taxpayers there are a couple of important points to remember.
In addition, when approaching the end of loan repayment period both employed and self-employed individuals should take care to ensure that they do not end up overpaying on the loan.
For individuals under self-assessment who are required to make student loan repayments there are two important points to remember which can often be overlooked:
- Student loan repayments are not collected through payments on account. Repayments are only made as part of the final balancing payment for a particular tax year, due on the 31 January following the end of that tax year.
- Interest on the loan balance for a particular tax year is calculated up to the date that payment is expected to be made, i.e. the 31 January following the end of the tax year. It is worth remembering therefore that paying early will not see a reduction in the interest charge for that year.
The other important aspect to consider is what will happen towards the end of the loan. Once a taxpayer is within 2 years of repaying it, they can contact the Student Loan Company and request to deal directly with them. This avoids the situation that the individual may end up paying a full year’s repayment amount in the final year rather than the part year they actual need in order to clear the loan.
This will effectively bring the student loan repayments out of the tax system for the last couple of years, and ensure that deductions will cease as soon as the right amount has been fully repaid by the taxpayer.
Alternatively, an individual should state on their self-assessment tax return that the loan will be paid off in the next 2 years, and then ensure that their online tax return is submitted to H M Revenue & Customs (HMRC) before 1 November for the final tax year of repayment in order to avoid overpaying.
For those in employment, they can also contact the Student Loans Company directly within the final 2 years of the loan and request to pay by direct debit.
Contact details for the Student Loan Company can be found via the following link https://www.gov.uk/guidance/contact-slc-repayment-enquiries.
If you have any questions concerning student loan repayments or would like assistance in ensuring you are making the correct payments, please contact our Tax Director, Jenny Marks.
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