How to calculate student loan repayments as a limited company director

Many people have outstanding student loans when they start contracting, but how do you calculate and make repayments if you work through your own limited company?

If you’re a traditional employee, your student loan repayments are automatically deducted from your salary via PAYE.

However, if you work for your own company, you are responsible for reporting your total income via self-assessment and making any loan repayments – if applicable.

Student loan basics for limited company directors

As a limited company owner, your student loan repayments are calculated based on your total taxable income, not just your salary. This includes both your salary and any dividends you receive from your company. Plus any other untaxed income – from interest, or letting out a property, for example.

It’s important to note that your company structure doesn’t exempt you from student loan repayments – you’re still responsible for repaying your loan if you meet the income thresholds.

You can find out what plan(s) you are on by signing into your online student loan account.

Student loan repayment plans – Plans 1,2,4,5 and Postgraduate

There are currently five main student loan plans in the UK. The plan you’re on depends on when and where you studied:

1. Plan 1: For students who started their course before 1st September 2012 in England or Wales, or after 1st September 1998 if you’re from Scotland or Northern Ireland.
2. Plan 2: For students who started their course on or after 1st September 2012 in England or Wales.
3. Plan 4: For students from Scotland who started their course on or after 1st September 2012.
4. Plan 5: For students from England and Wales who started their course on or after 1st August 2023.
5. Postgraduate Loan: This is for students who took out a Postgraduate Master’s Loan or Doctoral Loan.

Each plan has different thresholds and repayment rates, which we look at in a bit more detail:

Plan repayment thresholds and rates

The amount you need to repay depends on your income and which plan you’re on. Here are the current thresholds and rates for the 2024/25 tax year:

Plan 1:

• Threshold: £24,990 per year
• Repayment Rate: 9% of income above the threshold
• Interest Rate: 6.25%

Plan 2:

• Threshold: £27,295 per year
• Repayment Rate: 9% of income above the threshold
• Interest Rate: 7.9%

Plan 4:

• Threshold: £31,395 per year
• Repayment Rate: 9% of income above the threshold
• Interest Rate: 6.25%

Plan 5:

• Threshold: £25,000 per year
• Repayment Rate: 9% of income above the threshold
• Interest Rate: 7.9%

Postgraduate Loan:

• Threshold: £21,000 per year
• Rate: 6% of income above the threshold
• Interest Rate: 7.9%

As a limited company director, you should remember that these thresholds apply to your total taxable income, i.e. both salary and dividends.

Key differences if you’re on Plan 5

Plan 5 was introduced for new students starting courses from 1st August 2023 in England and Wales. It aims to create a fairer system for students and taxpayers.

Some of the key features of Plan 5 include:

1. Lower repayment threshold (£25,000) compared to Plan 2 (£27,295).
2. The repayment term is longer – 40 years – compared to 30 years for Plan 2.
3. Interest rates are set at RPI only, making them lower than Plan 2 rates.
4. Repayments start in April after graduation, regardless of income level.

These changes mean that while Plan 5 borrowers may start repaying sooner and for longer, they benefit from lower interest rates, potentially reducing the total amount repaid over the lifetime of the loan.

How to calculate your student loan repayments

As a limited company owner, you must calculate your student loan repayments through self-assessment. Here’s a step-by-step guide:

1. Work out your total taxable income (salary plus dividends and any other sources of untaxed income).
2. Subtract the relevant threshold for your plan.
3. Calculate the repayment percentage on the amount above the threshold.

For example, if you’re on Plan 5 and have a total taxable income of £40,000:

1. Total income: £40,000
2. Threshold: £25,000
3. Income above threshold: £15,000
4. Repayment: 9% of £15,000 = £1,350 per year

Repayment via self assessment

As a limited company owner, you need to report your income and calculate your student loan repayments via your annual Self Assessment tax return.

The deadline for submission and payment is by 31st January following the end of the tax year in question.

When you complete your Self Assessment, you’ll need to:

1. Declare all your taxable income, including salary and dividends.
2. Indicate that you have a student loan and which plan you’re on.
3. The Self Assessment system will calculate your repayment based on your total income.

Multiple loans and plans

If you have loans under multiple plans, you’ll need to make repayments for each plan once you earn over its threshold.

For example, if you have both Plan 2 and Plan 5 loans, you’ll start repaying your Plan 5 loan when you earn over £25,000 and your Plan 2 loan when you earn over £27,295.

What to do if you think you are paying too much

The amount calculated in your self-assessment tax return can’t be reduced.

However, if you think it is too much, you can write to HMRC and ask them for a certain amount to be suspended from collection pending confirmation of the amount required to be paid by the Student Loans Company (SLC).

A word of warning though; if any of the suspended amount is found to be payable, it will attract backdated interest and possibly a surcharge.

Voluntary payments

You can make additional loan repayments at any time. This is a good idea if you have the means to do so, as it will shorten the overall length of your loan and reduce the amount of interest charged.

However, it’s important to consider whether this is the best use of your funds, especially given the different write-off periods for each plan (40 years for Plan 5, 30 years for Plan 2, for example).

Remember that any voluntary payments are always in addition to the amounts that HMRC collects through self-assessment. A voluntary payment will not reduce the repayment amount calculated through self-assessment.

Some useful resources

1. GOV.UK Student Loan Repayment: https://www.gov.uk/repaying-your-student-loan
2. Student Loans Company: https://www.slc.co.uk/
3. Interest Rates for Student Loans: https://www.gov.uk/guidance/how-interest-is-calculated-plan-1