While you were studying at university, loans from the Student Loans Company to cover the cost of fees and maintenance costs may have seemed like a godsend. But once you’ve donned the cap and gown and began post-student life in the workplace, you’re faced with the joyous task of having to repay them. 
 
If you’re a permanent or agency employee, you’ll likely give these repayments little thought. Like income tax and national insurance contributions, student loans are deducted for you, before you receive your net income. And unless you keep a close eye on your payslips, you may not even know how much you’re repaying each month. 
 
For contractors, this responsibility is all yours at the end of each financial year, so it’s important to be aware of how and when you should go about making repayments. 
How much do I need to repay? 
 
If you’re a Scottish or Northern Irish student, you need to begin making repayments when you start earning more than £17,495 per year. English and Welsh students who started receiving student loads before the 1st September 2012 have the same threshold, and for those who started after this date, the threshold is a little higher, at £21,000. 
 
It’s worth bearing in mind that these are the figures for the 2016-17 financial year, and you should check the Student Finance website to find out if these figures have changed by the time you’re completing your self-assessment. 
 
For permanent and agencies employees, HMRC will deduct 9% of an employee’s gross monthly income, regardless of the loan amount to repay. For example, if two employees both earn £25,000, one of whom has £10,000 in student loans, and the other has £3,000, both will pay £30 a month if their loan was provided by the Student Loan Company in England or Wales. 
 
Self-employed individuals should calculate their repayments in the same way. 
 
How do I make the repayments? 
 
There are a couple of ways in which self-employed contractors can make their repayments. The first is to simply calculate the amount due each year, based on 9% of gross income, and declare this on the HM Revenue and Customs’ self-assessment system, which should be submitted by the 31st January. 
 
For contractors who work throughout the year on both a self-employed and employed basis, some of your student loan repayments will automatically be calculated by your employer. Repayments over this amount should be calculated separately. 
 
Lastly, if you’d prefer to make the payments throughout the year, instead of declaring 9% of your earnings at the end of January, you can pay Student Loans directly, as frequently as you like. With this option, you can also choose to set up a monthly direct debit, increase the payment amount, make additional one-off payments, or pay the remainder of the balance. 
 
What happens if I try to avoid repaying my student loan? 
 
Avoiding repayments of your student loan is not a clever idea. If you fail to mention your loan on your self-assessment, HMRC are likely to open up an enquiry to find out why you have not begun, or stopped repayments. If they find out through this enquiry that you still owe repayments for the year, you may incur both a penalty and an interest charge on the outstanding amount of 9% of your gross annual income. Probably not worth the risk! 
 
If you’d like to discuss the best repayment option for your employment situation, or have any queries about student loans or self-assessment in general, please feel free to get in touch. 
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