Self-employed people with student loans may see them become even more expensive from September.
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 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.
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.
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.
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