Plan 2 loans: How are student loan repayments calculated under self assessment?
In very basic terms, Plan 2 student loan repayments are due at a rate of 9%:
- on your earnings over £25,000 a year for the 2018/19 tax year; it was £21,000 for the 2017/18 tax year; whether from employment or self-employment
- on other income over £2,000 a year if you are required to fill in a tax return under self assessment.
Previously, we gave the example of Emily having two jobs, in neither of which she earned over the £25,000 threshold. If she were required to complete a tax return, for example because she also does some self-employed work, then her student loan repayments would be calculated accordingly.
Example – Emily, continued (1)
Emily has a Plan 2 income-based student loan. When she graduated, she could not find a full-time job so took on part-time work with Company A earning £20,500 a year. As she is not earning above the threshold, she does not have to make repayments.
In April 2018, she gets another part-time job for Company B, earning £5,000 a year. Note: Company B is not in any way related to Company A.
Even though her total earnings are now £25,500 a year, neither employer has to deduct student loan repayments because each employment is within the £25,000 threshold.
But she has to file a tax return for 2018/19 as she has also £2,000 of profits, after taking account of the trading allowance, from freelance work. Her total earnings add up to £27,500 – that is £20,500 from Company A + £5,000 from Company B and £2,000 profits from her freelance work.
This is £2,500 above the £25,000 student loan repayment threshold, so she has to pay 9% x £2,500, £225, in student loan repayments through her self-assessment.