Living the student life is all about finding that blend between having fun and learning but once you leave university, you’re left with a large debt that has to be repaid. While repaying them is a frightening thought when you’re employed but what about when you’re self-employed.
So, if you’re self-employed, you will need to put your student loan details on your Self Assessment tax return. With this in mind, if you’re self-employed, how do you repay your student loan?
Self-Assessment Tax Return – Will You Need to Complete It?
The tax year runs from the 6th April to the 5th April and you will need to declare any income during this period. This has to be done if you are self-employed and considered a sole trader and earned more than £1,000 or if you are a partner in a business partnership.
How Do Student Loans and Self-Assessment Impact Each Other?
If you have a student loan to repay and are self-employed then the amount of tax you pay might leave you slightly shocked, depending on what you earned. This is because student loan repayments are collected via self-employed income alongside any income that you earn from an employer.
There is a section on your Self-Assessment tax return that asks about student loans and so, any payments you make will be made as part of your tax bill.
Before I Begin Paying My Loan, How Much Can I Earn?
There is an earning threshold that you have to pass in order to begin paying your student loan and this is often updated at the beginning of every tax year.
In order to determine how much you will need to pay, you will need to determine what plan you are on. There are two plans:
Plan 1 – You will be on this plan if you studied prior to 1st September 2012 in England or Wales or if you are Northern Irish and studied in the UK on or after 1 September 1998.
Plan 2 – You will be placed on this plan if you studied in England or Wales after the 1st September 2012 or you are an EU student who studied after 1st September 2012.
Plan 4 – This plan is for Scottish students who studied in the UK on or after 1st September 1998.
How Much Do You Pay?
If you are on plan 1 then you will begin to pay your student loan once you earn more than £382 per week which equates to £1,657 per month or a salary of £19,895 per year.
If you are on plan 2, your earnings will need to be more than £524 per week or £2,274 per month which is a salary of £27,295.
For those on Plan 4, you will begin repaying your loan when you earn more than £480 per week or £2,083 per month which is a salary of £25,000.
When Do You Complete Your Self Assessment Tax Return?
It’s imperative that you make sure that you pay your student loan once you begin earning the correct salary. This will mean that you pay both income tax and National insurance although it will include your student loan repayments. Your tax bill will need to be paid before or on the 31st January after the previous tax year but you can make a submission earlier than that.
So, when you become self-employed, it is down to you to make sure that you complete your Self-Assessment correctly as this will determine how much your repayments will be.