How do I pay back a student loan when I’m self-employed?

Posted on Dec 14th, 2016 | Personal finance

How do I pay back a student loan when I’m self-employed?, image of students walking

Student finance repayment is the ugly side of university life. It’s a daunting debt as is, but it can be even scarier for the self-employed. As a freelancer, contractor, or small business owner, your student loan repayment transactions will need to be included on your annual Self Assessment tax return.

Confused about how to go about managing your repayments? Don’t sweat, here’s everything you need to know about paying back a student loan when you’re self-employed.

How much do I need to be earning before repayment starts?

If you took out your loan in England or Wales before 1st September 2012, you must start student loan repayments when your salary reaches £17,495. HMRC’s catchy official term for this threshold is Plan 1.

However, if you took out your loan after (or on) 1st September 2012, you must start Student Loan Repayments when your salary reaches £21,000. Unsurprisingly, this is referred to as Plan 2.

This £21,000 repayment threshold for Plan 2 loans has been frozen until at least April 2021.

Ex-students who took out loans in Scotland or Northern Ireland are only affected by Plan 1 at this point in time. Please note these thresholds relate to tax year 2016/17, and also that Plan 1 is reviewed on 6th April every year. Retrospective repayment thresholds are available here.


How does this affect me as a self-employed person?

If you complete and return your 2016/17 Self Assessment form by 31st October 2017, HMRC will calculate how much you need to pay for student loan repayments, as well as the usual tax and National Insurance contributions. If you get your accountant to do this rather than HMRC, you won’t need to worry about this deadline.

Payment to HMRC is due by 31st January of the relevant tax year. HMRC will then pass the details of your student loan repayment amount to the Student Loan Company, who will update your account accordingly.


What if I didn’t get my Self Assessment in before 31st October?

If you fail to return the form by the 31st October, you (or your accountant) will need to manually calculate the repayment amount.
Every student loan holder is required to pay back 9% of their annual gross income that falls above the threshold. To manually work out how much you need to pay, you need to:

  • Calculate your annual gross income by adding together your gross salary, gross dividends, and any other earnings.
  • Subtract the threshold that applies to you (either £17,495 or £21,000 from plans 1 or 2 mentioned above) from your annual gross income to find out how much over the threshold you are.
  • Your annual student loan repayment will be 9% of this figure.

The figure you end up with is your annual payment and must be sent to HMRC before January 31st to avoid fines for lateness.


For example:



Joe took his loan out in Scotland, so he is affected by Plan 1. He has a gross salary of £16,000, with dividends of £12,000 and other earnings of £2,000. To find his annual loan repayment amount, he would:

  • Add these amounts together, (making £30,000)
  • Subtract the Plan 1 threshold of £17,495 (leaving £12,505)
  • Calculate 9% of £12,505, giving him the annual loan repayment amount of £1,125.45.



Sarah took her loan out after 1/9/12 in England, so she is affected by Plan 2. She also has a gross salary of £16,000, with dividends of £12,000 and other earnings of £2,000. To find her annual loan repayment amount, she would:

  • Add these amounts together, (making £30,000)
  • Subtract the Plan 2 threshold of £21,000 (leaving £9000)
  • Calculate 9% of £9000, giving her the annual loan repayment amount of £810.


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Written by Tom West

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