Student Loans – are they loans or is it really a tax?
Those of us fortunate to go to university in the past three decades have also had the dubious privilege of having student loans. On the surface, these are loans on which interest is charged and a balance that needs to be repaid. Once the loans are repaid, no further repayments are required.
However, despite the name, student loans have many characteristics of a tax rather than a loan.
For starters, anyone in employment and earning above the repayment threshold repays their student loan by having a deduction made from their payslip. This means that their employer makes the loan repayments over to the Student Loans Company (SLC) (via HM Revenue & Customs) much like it pays over income tax and national insurance deductions straight to HM Revenue & Customs.
For those paying tax through self-assessment, your student loan repayments are made in the same way as income tax and national insurance, i.e. through your tax return.
Next, anyone not earning above the repayment threshold does not need to make any repayments of their student loan. This is similar to an individual not earning above their personal allowance not having to pay any tax. Generally, of course, loans must be repaid irrespective of earnings.
If, after certain number of years the loan has not been fully repaid, the remaining balance on your student loan is simply written off with no need for further repayments. Again, unlike any loan you could take out, there are no adverse consequences of not paying it back!
Lastly, the amount of student loan one repays is dependent on income levels. One unwelcome side effect of higher earnings is paying more tax, and the same is true of student loan repayments.
How does this affect you?
If you have not been to university, you may not think student loans will ever affect you. However, if you are a business owner with employees, you may need to deal with student loans as part of your payroll for employees. If you require assistance with your payroll so that you can focus on your business, you may wish to consider outsourcing your payroll function.
If you are issued with self-assessment tax returns by HM Revenue & Customs and have a student loan, you will need to ensure your tax return has the correct entries. This is easy to forget, especially when you are wrestling with the more obvious income sources and allowable deductions you need to include. Should you require assistance in preparing your tax return then please contact your local Perrys branch.