Making student loan repayments through self assessment

If you’re self-employed, run a business, or work as a freelancer, you’ll know that managing tax through self assessment can feel like juggling several balls at once. Add student loan repayments into the mix, and things get more complicated. The good news? Understanding how student loans interact with your self assessment tax return can actually save you time, money, and stress. In this post, we’ll walk through exactly how student loan repayments work for self-assessed taxpayers and what you need to do to get it right.

How Student Loan Repayments Are Deducted

Student loan repayments are handled differently depending on whether you’re employed, self-employed, or both. If you’re employed, your employer typically deducts repayments directly from your salary before you see it. But if you’re self-employed or a director of a limited company, things work differently.

For self-employed individuals and business owners, student loan repayments aren’t automatically deducted. Instead, you’ll be assessed on your income through self assessment, and Student Loans Company (SLC) will contact you separately about repayment. The key point here is that student loan repayments are not a tax deduction against your profit—they’re a separate obligation based on your income.

It’s crucial to understand that while Income Tax and National Insurance are calculated on your taxable profit, student loan repayments are calculated on your gross income (earnings before expenses). This distinction matters when you’re figuring out how much you actually owe.

Understanding Income Thresholds for Repayment

The amount you repay depends on which student loan plan you’re on, and it’s worth knowing the current thresholds.

For Plan 1 loans (older loans for students who started before September 2012), repayments are due if your income exceeds £22,015 for the 2024/25 tax year. You then repay 9% of everything above that threshold.

For Plan 2 loans (for students who started from September 2012 onwards), the threshold is higher at £27,627 for 2024/25. Again, you repay 9% of income above this level.

If you’ve got a Postgraduate Loan, the threshold sits at £21,000, with the same 9% repayment rate.

When calculating whether you’ve crossed these thresholds, remember that SLC uses your overall income across all sources—employment, self-employment, rental income, and so on.

What to Do on Your Self Assessment Return

Here’s where clarity really helps. Your self assessment return focuses on your tax position: calculating your profit, working out your income tax liability, and determining any National Insurance due. Student loan information doesn’t go on your tax return itself.

Instead, you’ll declare your income on your self assessment return (which SLC can access through HMRC systems), and SLC will separately assess whether you owe anything based on your income level. They’ll then contact you with a repayment demand or an arrangement to collect repayments, depending on your circumstances.

However, it’s sensible to keep clear records of your actual profit and income for the tax year—you may need these figures to discuss repayment arrangements with SLC. If your income fluctuates significantly, it’s worth noting that SLC can reassess your repayments annually based on updated income figures.

Mixed Employment Scenarios

If you’re both employed and self-employed in the same tax year, your employer will likely already be deducting student loan repayments from your salary (if you earn above the threshold). You’ll need to let SLC know about your additional self-employed income so they can assess whether further repayments are due. This is worth flagging early to avoid unexpected bills.

Similarly, if you have multiple self-employed businesses or partnerships, all of your self-employed income counts towards the same threshold and repayment calculation.

Taking Action

The best time to get organised is at the start of your tax year, not when your self assessment bill arrives. Keep accurate records of your income and expenses, understand which loan plan you’re on (SLC can tell you), and know your repayment threshold. If your income is close to the threshold, even small accounting adjustments can make a difference.

Above all, don’t assume student loan repayments are sorted just because you’re managing your tax return. They’re separate obligations that require active management on your part.

For tailored advice, contact Severn Accounting — we’re here to help.