In the UK, individuals with student loans must inform HMRC about their loan details when completing their Self-Assessment tax returns. This process ensures that any outstanding loan repayments are properly accounted for, especially for those who are self-employed or have additional sources of income beyond employment.
Identifying Student loans plan types
When you fill out your tax return, you must specify the type of student loan you have. The UK government offers various loan plans, such as Plan 1, Plan 2, Plan 4, and the Postgraduate Loan (PGL). Each plan has different repayment thresholds and interest rates.
To identify the type of student loan you have, please refer to correspondence that you should have received from The Student Loans Company or contact them via https://www.gov.uk/contact-student-loans-company
Student loans – repayment through employment
If you’re employed, your student loan repayments are typically deducted directly from your salary by your employer. These deductions are based on your income and the repayment threshold for your specific loan plan.
If you are required to complete a tax return, this tax return then requires you to report these amounts to ensure they are correctly applied to your total annual income. This is particularly important if you have multiple sources of income or if your income fluctuates throughout the year.
Student Loans – Additional income
For those who are self-employed or have additional income streams (e.g. from rental properties, investments, or freelance work), the tax return will calculate your total earnings. You may need to make additional student loan repayments based on this extra income.
Student loans and Voluntary repayments
If you wish to make voluntary repayments towards your student loan, these can also be reported on your tax return. Voluntary repayments can reduce the total amount of interest you pay over the life of the loan.
Overseas income
If you live or work abroad, you are still required to make student loan repayments if your income exceeds the threshold for your loan plan. The repayment process differs depending on whether you’re inside or outside the European Economic Area (EEA).
Benefits in kind
If you receive non-cash benefits from your employer, such as a company car or private health insurance, these are considered benefits in kind. They need to be reported on your tax return and can affect your student loan repayments.
Student loans – Penalties for non-compliance
Failing to accurately report your student loan details on your tax return can lead to penalties. HMRC takes compliance seriously and can impose fines or additional interest charges for incorrect or late submissions.
Student Loans – Other considerations
Annual Statements: You should review your annual student loan statement, which details your balance and repayments made during the year. This statement can help you accurately complete your tax return.
Preventing overpayments: If the amount outstanding on your student loan is small, it is advisable to contact The Student Loans Company through the link shown above to arrange to pay the remaining loan through direct debit outside of the tax system as otherwise the overpayment of your student loan is a very real possibility which may take some time to be resolved afterwards
Changes in Circumstances: If your circumstances change, such as a significant increase in income, it’s crucial to update HMRC as soon as possible. Changes can affect your repayment amounts, and failing to report them may result in unexpected charges.
Advice and Support: If you’re unsure about how to report your student loan on your tax return, HMRC provides resources and support to help you. It may also be helpful to consult with a tax professional, especially if you have complex financial circumstances.
For the full guidance and specific instructions on Student Loans please refer to the official HMRC page: https://www.gov.uk/guidance/tell-hmrc-about-a-student-loan-in-your-tax-return
If you are a payroll or HR manager and require assistance with payroll or the reporting of student loans as part of the payroll or RTI process please contact us, we have a team of payroll experts that are waiting to help.
