Student Loan Deductions in Tax Return, How student loan is calculated?

Q: A director takes a minimal salary (say, £10,000) via the company payroll and although the employer was issued with a form SL1 (notice to make Student Loan deductions) her salary is below the relevant threshold and no deductions have been made. However, she is also a shareholder in the company and receives dividends of £20,000.  How are these treated for Student Loan purposes?

A. It is correct that if the employee has earnings below the relevant threshold, no Student Loan deductions will be made through the payroll.

If the former student has any other sources of income, then any loan repayments will be calculated and paid via the Self Assessment Tax Return.  Dividends (or other “unearned income”) of £2000 or less per annum are ignored – however, if the total unearned income exceeds £2000 then the whole amount is taken into account. The first £2000 is not exempted.

The normal thresholds will apply.  With effect from April 2017, the thresholds for making Student Loan deductions are:

  • Plan 1 – £17,775 annually (£1481.25 a month or £341.82 a week)
  • Plan 2 – £21,000 annually (£1750 a month or £403.84 a week)

HMRCs guidance on Student Loans (https://www.gov.uk/hmrc-internal-manuals/collection-of-student-loans-manual) states that unearned income is included only if a statutory return has been issued to the borrower.  There is no requirement to complete a Self Assessment return solely for Student Loan purposes, though it will be rare for such a return not to have been issued.

In the situation described, the director’s total income (£30,000) will be taken into account, so even though there were no deductions via the payroll, the individual’s employment income is still included in the calculation and will thus increase the liability.

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