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 (see how dividends are taxed).

Plus any other untaxed income, such as interest or rental income.

Your company structure does not exempt you from student loan repayments — you are still responsible for repaying your loan if you meet the income thresholds.

Student loan repayments are based on income in the tax year it is received, so large dividend payments in a single year can significantly increase your repayment.

Because of this, contractors who take a low salary and higher dividends may not see student loan repayments deducted throughout the year, but instead face a larger bill when they complete their Self Assessment.

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This can catch people out if they have not set funds aside in advance.

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 have taken out a Postgraduate Master’s Loan or a 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, remember that these thresholds apply to your total taxable income (salary and dividends).

Key differences if you’re on Plan 5

Plan 5 was introduced for new students starting courses in England and Wales from 1st August 2023.

Some of the key features of Plan 5 include:

1. Lower repayment threshold (£25,000) compared to Plan 2 (£27,295).
2. Longer repayment term (40 years instead of 30 years).
3. Interest rates set at RPI only.
4. Repayments start in April after graduation.

These changes mean that while Plan 5 borrowers may repay for longer, they may benefit from lower interest over time.

How to calculate your student loan repayments

As a limited company owner, you must calculate your student loan repayments through Self Assessment:

1. Work out your total taxable income (salary, dividends and other income).
2. Subtract the relevant threshold for your plan.
3. Apply the repayment percentage to 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 must report your income and calculate your repayments via your annual Self Assessment tax return.

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

In practice, this means your student loan repayments are made alongside your tax bill, rather than being spread monthly as they would be under PAYE. Planning for this in advance is important to avoid a large unexpected payment.

When completing your return, you must:

1. Declare all taxable income, including salary and dividends.
2. Confirm that you have a student loan and that you have a repayment plan.
3. Allow HMRC to calculate the repayment based on your income.

Multiple loans and plans

If you have loans under multiple plans, you’ll need to make repayments for each plan once your income exceeds the relevant thresholds.

This can result in overlapping repayments, particularly for those with both undergraduate and postgraduate loans, increasing the overall percentage of income being repaid.

What to do if you think you are paying too much

The amount calculated in your Self Assessment tax return cannot be reduced.

However, if you believe it is incorrect, you can contact HMRC to request a temporary suspension while the Student Loans Company confirms the correct amount.

Be aware that if any suspended amount is later found to be payable, it may attract interest and penalties.

Voluntary payments

You can make additional loan repayments at any time.

However, it’s important to consider whether this is the best use of your funds, especially given the long write-off periods for some plans.

For many contractors, particularly those on newer plans with long repayment terms, making additional payments may not always be the most efficient use of surplus income.

Remember that voluntary payments are in addition to amounts collected through Self Assessment and do not reduce the calculated repayment.

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 (Plan 1, this links to other Plan guides): https://www.gov.uk/guidance/how-interest-is-calculated-plan-1