How does budgeting for my self assessment tax affect student loan repayments?
One facility HMRC offer for payment of all self assessment liabilities, including student loan repayments, is a regular direct debit known as a Budget Payment Plan (‘BPP’). This allows you to pay by instalment, subject to certain conditions.
For student loan borrowers repaying through self assessment, there is, however, a possible disincentive to taking up a BPP. As the effective date of repayment is treated as 31 January following the end of the tax year, your interest will still be clocking up on the outstanding student loan balance even though HMRC have your money early.
Example – Chas
Chas has a student loan. He started a new business in 2014/15 and his taxable profits were £22,000, so his tax bill for the year was £2,400. In addition, he had £1,264 Class 4 National Insurance contributions (‘NICs’) to pay. His student loan repayment was a
On top of that, he has to make payments on account (POAs) for 2015/16 of half of his tax and Class 4 NICs liability for 2014/15 on 31 January and 31 July 2016. Payments on account are not due on the student loan repayment.
The amounts he has to pay come as a bit of a shock to Chas, so he decides to start paying towards the amount he owes on 31 January by entering into a direct debit BPP with HMRC. Luckily he did his tax return early and his plan was set up in May 2015, allowing him nine months to spread the payment at £662 a month. Of this, £51 a month is his student loan repayment.
Let us look at his total payments (not including Class 2 NICs paid separately by direct debit) in the table below:Source: www.taxguideforstudents.org.uk