Student Loan Repayment

As a company director, what happens if you have a student loan repayment to make?

Normal practice for a company director is to take a minimal salary, say £10,000 via Payroll and PAYE, and the remainder by receiving dividends.

What are the tax implications for your student loan repayment?

Salary below the relevant threshold

If the employee has earnings below the relevant threshold, (see below) then no Student Loan deductions will be made through the payroll.

If the former student has any other sources of income, then any loan repayments will be calculated and paid via their Self-Assessment Tax Return. Dividends (or other “unearned income”) of £2000 or less per annum are ignored – however, if the total unearned income exceeds £2000 then the whole amount is taken into account.

The normal thresholds will apply. With effect from April 2017, the thresholds for making Student Loan deductions are:

Plan 1 – £17,775 annually (£1481.25 a month or £341.82 a week)
Plan 2 – £21,000 annually (£1750 a month or £403.84 a week)

In the case of £10,000 of salary, and £20,000 of dividends, the full amount will be taken into account, so even though nothing was recovered through payroll, the salary amount is still included in the overall calculation and may well mean that they will have to make a loan repayment.

More information can be seen on the HMRC website It should be noted that if you don’t currently have to complete a self-assessment tax return, then there is no requirement to complete one just for Student Loan purposes, though as a Director, it is most likely that you will have to complete one anyway.

Crunchers – Accountants Edinburgh