Once an individual starts earning an income, they are keen to learn about the deductions to expect from their monthly paycheque. This article aims to discuss whether student loan repayments are deducted from your income before or after income tax is deducted. In addition to this, we will also explore whether you have to file a tax return or will tax be deducted from your income directly, how tax deductions apply to individuals on two jobs and how tax codes are applied to your income.

Is Student Loan Deducted Before Tax?

Students loan, income tax and national insurance are all deducted simultaneously from your income if you are a salaried employee under the PAYE system. However, the amount that is deducted for the repayment of your student loan depends on the loan plan that you have opted for. These include the following:

  • Plan 1: You will repay when your income is over £382 a week, £1,657 a month or £19,895 a year (before tax and other deductions).
  • Plan 2: You will repay when your income is over £524 a week, £2,274 a month or £27,295 a year (before tax and other deductions).
  • Plan 4: You will repay when your income is over £480 a week, £2,083 a month or £25,000 a year (before tax and other deductions).
  • Postgraduate Loan: You will repay when your income is over £403 a week, £1,750 a month or £21,000 a year (before tax and other deductions).

If your income changes during the course of a tax term, you can ask HMRC for a refund as per the following income classification:

  • £19,895 per year if you are on Plan 1
  • £27,295 per year if you are on Plan 2
  • £25,000 per year if you are on Plan 4
  • £21,000 per year if you are on Postgraduate Loans

If you have two jobs, the student loan repayment amount will be deducted from the income which is above the threshold. Your combined income will not be taken into account for the deduction.

If you pay your taxes through self-assessment, HMRC will calculate the student loan deduction based on your annual income.

Do I Have To File A Tax Return?

You don’t have to file a tax return if you are a salaried employee as your tax is deducted by your employer before your salary is paid; using the tax code assigned by HMRC. However, you must file a tax return if you fall into any of the below categories:

  • You are self-employed and your income was more than £1,000 
  • You earn through renting out property and your income was more than £2,500 
  • You earned through commission or tips in excess of £2,500 
  • You earn through savings or investments and your income was £10,000 or more 
  • You have sold a property or shares and have earned profits on them (Capital Gains Tax will apply in this case)
  • You are registered as a director of a profit-making organisation 
  • The joint income that you or your partner have earned was in excess of £50,000 and you claim Child Benefit
  • You have earnings from outside the UK 
  • You live abroad but you have earnings in the UK
  • The total amount of your taxable income was over £100,000
  • You are a trustee of a trust or a registered pension scheme
  • The State Pension you received during the tax term was your only source of income and was in excess of your personal allowance
  • HMRC issued you a P800 stating that you didn’t pay enough tax in the previous tax term

Which Documents Do I Need To File A Tax Return?

Before you start to file a tax return, you must make sure that you have the following documents available with you:

  • your National Insurance number
  • your ten-digit Unique Taxpayer Reference (UTR)
  • your Government Gateway ID
  • details of your untaxed income from the previous tax year (this includes income from rental income, dividends from shares, interest on savings, capital gains)
  • expense details related to self-employment or partnership status (receipts/invoices/bank statements)
  • tax-free/relieved charity contributions
  • P60 or other records with details of your income and paid taxes (if any)
  • pension income and pension contributions
  • redundancy payments or employee benefits

How Can I File A Tax Return?

If you are filing a tax return for the first time, you need to register with the HMRC Government Gateway user ID. You will register differently depending on which of the following classifications:

  • you are a self-employed or a sole trader
  • you are not self-employed
  • you are registering a partner or partnership

Once you have registered, you can choose to file your tax returns by making an online payment or using a printed form SA100. This is your main form. Depending on the classification of your source of income you will also need to fill out either of the following supplementary forms:

  • SA102 for employees or company directors 
  • SA103S or SA103F for self-employed 
  • SA104S or SA104F for business partnerships 
  • SA105 for UK property income 
  • SA106 for foreign income or gains
  • SA108 for capital gains 
  • SA109 for non-UK residents or dual residents

How Can I Claim A Tax Refund?

To claim a tax refund, you will need to use the P60 form and share the following details with HMRC:

  • your earnings in total
  • the amount of income tax that you have paid
  • the amount of income tax that you have paid in excess

Additionally, you must also provide details of your National Insurance number and employer reference number.

In the case that a taxpayer has overpaid their tax due to any of the following reasons, 

  • being put on an emergency tax code due to starting a new job,
  • having two jobs simultaneously, or
  • switching from a full time to a part-time job

they can reclaim the amount from HMRC after the end of the tax year. Claims for overpaid taxes can be made for up to four years. This means that an overpaid tax in 2022 can be claimed until 2026.

You will also need your P60 form in the following situations:

  • to reclaim overpaid tax
  • to apply for tax credits
  • to serve as proof of income (if someone applies for a loan or a mortgage)

How Much Income Tax Do I Have To Pay?

Incomes above the minimum cap are taxed at an incremental rate of 20 per cent to 45 per cent depending on whether an individual belongs to the basic, higher or additional tax rate band. Below are details of these bands:

  • 0 per cent income tax when income is up to £12,570
  • 20 per cent income tax when income is between £12,571 and £50,270 
  • 40 per cent income tax when income is between £50,271 and £150,000 
  • 45 per cent income tax when income is above £150,001

If you are self-employed, you are required to file a self-employed tax return to pay your taxes through a self-assessment. 

How Much Tax Will You Pay On A Second Job?

The tax that you pay on a second job will depend on a number of factors. However, generally speaking, your second job is usually assigned a BR (Basic Rate) tax code which indicates that there is a 20 per cent tax due on your income.  

Your Personal Allowance is applicable to your combined incomes from different sources. However, for the purpose of tax deduction, your main or primary job, which is also the source of a higher income is considered for Personal Allowance deduction prior to a tax rate being applied.

Your second job is usually considered to be the one that provides a lower income than the first one and there is no consideration for Personal Allowance since it has already been accounted for. The reason is that the HMRC divides your total income by sources to calculate the amount of tax that is due on your cumulative income.

Since you get Personal Allowance once (it does not apply to each individual source of income), it may be in your own interest to have it applied to your main job and not the second one. However, if someone works two jobs and their cumulative income is less than the Personal Allowance amount of £12,750, they can have it spilt across both incomes. Sometimes a second job may increase your tax bracket which leads to a higher tax deduction on your income with an insignificant impact on your take-home salary.

How Are Tax Codes Assigned?

The following steps are followed by the authorities while assigning tax codes:

  • Step 1: Your tax allowances are calculated. In most cases, this is an individual’s personal allowance added to any other allowances and job expenses.
  • Step 2: Your deductions are calculated. These are incomes for which tax has not been paid and may include any part-time work or certain state benefits.
  • Step 3: The deductions are subtracted from the tax allowances. The result is your pre-tax income. If this amount equals personal allowance, your income remains tax-free.

If you don’t know your tax code, you can find it through any of the below-listed documents:

  • Payslip
  • P45 form
  • P60
  • PAYE coding notice
  • Pension advice slip
  • HMRC website

Conclusion:

The discussion in this article makes it clear that repayment of one’s student loan is automatically deducted from their income when income tax and national insurance contributions are deducted under the PAYE system. The amount to be deducted depends on the amount you earn. However, if you are filing tax returns through the self-assessment system, your tax deduction will be different each year, depending on your annual income.

FAQs: Is Student Loan Deducted Before Tax?

Do student loans get forgiven after 25 years in the UK?

If you have taken a Postgraduate Loan in England or Wales, it will be written off after 30 years from the date you were supposed to start paying it back. In the case of other loan plans, they get written off by the time you are 65 years old.

How much do you pay monthly for student loans in the UK?

Your monthly payments towards student loans depend on the income-based plan that applies to you. For instance, in the case of Plan 1, you will have to repay 9 per cent of your income if you earn £382 a week or £1,657 a month.

How much is the repayment threshold for 2021-2022?

The current repayment threshold for student loan repayment is £21,000 a year, £1,750 a month or £404 a week. If you earn below these amounts, your student loan repayments will stop until your income rises above the given thresholds.

How can I avoid paying back my student loan in the UK?

There is no alternative to the repayment of student loans in the UK. However, if your income is below £21,000 a year, £1,750 a month or £404 a week, your student loan repayments will stop until your income rises above the given thresholds. If you have taken a Postgraduate Loan in England or Wales, it will be written off after 30 years from the date you were supposed to start paying it back.

Will I ever pay off my student loan?

If you are unable to pay back your Postgraduate Loan in England or Wales, it will be written off after 30 years from the date you were supposed to start paying it back. In the case of other loan plans, they get written off by the time you are 65 years old.

References:

Assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file

Repaying your student loan: When you start repaying – GOV.UK

Self Assessment tax returns: Who must send a tax return – GOV.UK

How to fill in a Self Assessment tax return

Estimate your Income Tax for the current year – GOV.UK

Second job tax and pay

What your tax code means – GOV.UK

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