Self-employed people with student loans may see them become even more expensive from September.
- 7 self-employed tax changes you need to know about for 2018
- Dodgy email from HMRC? Here’s how to avoid falling for a scam
- 750,000 people could soon receive an HMRC fine
- What does business insurance cover?
Some student loans will see an interest rate increase to 6.3 per cent in September, up from 6.1 per cent.
The interest rate is set every September, and rises according to the retail prices index of inflation each March. It follows an even more significant increase last September, to 6.1 per cent from 4.6 per cent.
Self Assessment shock
Self Assessment taxpayers make student loan repayments through the Self Assessment system, but many fail to budget for this outgoing when planning to pay their tax bills.
Student loan repayments are calculated differently depending on when the loan was taken out, but for both Plan 1 and Plan 2 loans, taxpayers repay 9 per cent of their income over the set threshold. This threshold is £25,000 per year for Plan 2, and £18,330 per year for Plan 1.
This can add significantly more to self-employed people’s annual tax bill.
Quarterly tax returns?
In 2017, the government announced plans to introduce a quarterly tax return system, in part in order to ease the pain of one large annual tax bill.
But despite what the government said were budgeting advantages, small business owners overwhelmingly rejected quarterly tax returns and the plans were shelved.
However, the government is set to trial more regular VAT returns, and there is concern that this may lead to the eventual return of quarterly reporting for every small business.
Who does the student loan interest rate rise affect?
The higher interest rate will impact graduates who started university after 2012, but the amount charged will depend on earnings.
Those earning £45,000 or more will be charged the full 6.3 per cent. Those earning between £25,000 and £45,000 will be charged between 3.3 per cent and 6.3 per cent, set on a sliding scale according to earnings.
Looking for self-employed insurance?
With Simply Business you can build a single self employed insurance policy combining the covers that are relevant to you. Whether it’s public liability insurance, professional indemnity or whatever else you need, we’ll run you a quick quote online, and let you decide if we’re a good fit.