Guide to Student Loan Repayments when Self-Employed

When you're a self-employed contractor, freelancer or small business owner, sorting out your student loan repayments can feel a bit daunting.

It's simple enough when you're an employee - the payment just gets deducted from your wages in the same way as your income tax and National Insurance contributions. But, if you're responsible for filling out your own Self-Assessment tax return, the process is a little more involved.

To help, we've put together this handy guide on how to repay your student loan if you're self-employed. We'll look at the different ways the loan repayment is calculated, how to make student loan repayments when self-employed, what to do if you've almost paid off your student loan and the link between Self-Assessment tax returns and student loans. Finally, we'll tell you about how we can help.

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How is the student loan repayment amount calculated?

Before we go any further, it's worth pointing out that your repayment amount will be the same regardless of your employment status. So, you won't be forced to pay a higher amount just because you're self-employed.

But how are your loan repayments calculated? Well, it's different, depending on when and where you took the loan out.

If you took your loan out in England or Wales before 1st Sept 2012, you'll repay your loan under HMRC's Plan 1. If you're on this plan, you'll start to pay off your loan once your annual earnings exceed £19,390. From 6th April 2021 this threshold will increase to £19,895. The amount you'll pay is equal to 9% of anything over that earnings threshold.

If you took out your loan after that date in England or Wales you'll be under Plan 2. Under this plan, you'll start to pay off your loan once your annual earnings exceed £26,575, increasing to £27,295 for 21/22 As with Plan 1, the amount you'll pay is calculated as 9% of anything over your earnings threshold.

Scottish and Northern Irish students currently repay under the terms of Plan 1. So, if you took out your loan in either of those countries you'll start to pay off your loan once your annual earnings exceed £19,390 (£19,895 figures for the tax year 2021/22).

If you're paying off a postgraduate Master's or Doctoral loan, the numbers are a little bit different. In England and Wales, you'll need to start repaying once your earnings exceed £21,000 per year. In Scotland and Northern Ireland, the repayment threshold is £18,330 per year. The thresholds for postgraduate loans remain the same for 2021/22.

How to make student loan repayments when self-employed

In the same way as an employed person would, self-employed people pay student loans through the tax system - just like with income tax and National Insurance. It comes out automatically, so there's no separate assessment system to go through.

If you studied full-time, you'll start repaying in the April following the end of your course - but only once your earnings go above the required threshold.

Studied part-time? Then payments will begin in either the April after you finish the course, or four years after the start of your course whichever comes sooner. Again, this only applies once your earnings cross the threshold.

What to do if you've almost paid off your loan

If it looks like you will pay off your student loan within two years, then there's action you can take to avoid overpaying. When you're filling in your Self-Assessment tax return, be sure to state that your loan will be paid off in the next two years.

Self-Assessment and student loans

Sorting your Self-Assessment correctly and on-time is vital to avoid penalties and interest on late payment. It is also important to make sure you don't fall behind on your student loan payments.

Your Self-Assessment tax return (SATR) is due to be filed by 31st January each year, although you can file it any time after the tax year ends and we would suggest getting this done as soon as possible. It's vital that you submit it by 31st January. Miss this deadline and you could experience fines or penalties.

Getting help with your student loan repayments

If you feel overwhelmed by the facts and figures surrounding student loan repayments for self-employed people, don't worry - we're here to help.

Our team of experts can guide you through every aspect of your Self-Assessment tax return, including repaying your student loan. Get in touch today to find out how we can help you.