Feeling like giving back more than you took lately? Student Loan repayment is a pain for many young adults and they come on stage just when you think you got your life on track and making actual money.
As a student loan borrower, you may be wondering what HMRC’s recent overcharge detection means for you. In order to understand the impact of this error, it is important to first have a clear understanding of what exactly a student loan repayment is.
What is a Student Loan Repayment?
A student loan repayment refers to the amount that borrowers are required to pay back in order to cover the cost of their higher education. This amount is typically calculated based on the borrower's income and is paid back through HMRC via the PAYE (Pay As You Earn) system or through self-assessment.
You won`t repay student loans unless you are earning less than;
- £22,015 a year
- £1,834 a month
- £423 a week
If your income exceeds one of these thresholds, HMRC will send you or your employers, depending on your status, a notification to start repayment of student loans.
How do I Repay Student Loans as a Self-Employed?
Being self-employed in your first couple of years is already a stressful job, saving the tax you`re going to pay before the end of next January, and monitoring your finances meticulously is a draining routine that you`ll be accustomed to in time. A little fallpit like a student loan is the last thing you`d want to see when your Self Assessment Tax Calculation arrives.
As a self-employed, student loan repayment threshold changes every year. You repay 9% of your income over the thresholds. For more information please check What is student loan repayment
Student Loan Repayment Thresholds
Plan -1
If you started your higher education before 1 September 2012;
| Income Before Tax | Roughly Amount That You`ll Pay per Month |
| £22,015 | £0 |
| £23,000 | £7 |
| £24,000 | £14 |
| £27,000 | £37 |
| £30,000 | £59 |
Plan -2
If you started your higher education between 1 September 2012 and 31 July 2023
| Income Before Tax | Roughly Amount That You`ll Pay per Month |
| £27,295 | £0 |
| £28,000 | £5 |
| £29,500 | £16 |
| £31,000 | £27 |
| £33,000 | £42 |
HMRC's Error in Calculation
Recently, it was discovered that a number of student loan borrowers were overcharged due to an error in HMRC’s calculation process. This error affected those who were paying back their student loans through PAYE and receiving benefits in kind, as well as those who were self-employed and had to make repayments through self-assessment.
The error occurred due to HMRC’s malfunctioning system which was unable to differentiate between payrolled benefits in kinds and PAYE.
Steps Taken by HMRC
Upon detection of this error, HMRC has taken swift action to correct the mistake and started sending out mails. This includes a choice between;
- A refund,
- Cancel their overpaid amount against their loan balance,
- Fixing in progress to separate payrolled benefits in kinds from PAYEs.
If you have been affected by this student loan repayment calculation error, HMRC will contact you directly with further instructions on how to proceed.
How Does it Affect You as a Self-Employed?
If you are self-employed and have overpaid your student loan due to this error, HMRC will contact you directly and provide options for you to choose from. This may include receiving a refund or having the overpaid amount deducted from your future repayments.
If you do your self-assessment tax return before 31 October 2023, HMRC will inform you how much you`d need to repay as a student loan. It is always best to hire an accountant and have us make the calculations especially when the loan repayment system is in a bit of disarray.
