How to account for Student Loan when doing monthly accounts?

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[malvolio]

No idea - except I thought it was a personal liability, so nothing to do with YourCo. Also, you pay dividends out of net profit, i.e. after Corporation Tax has been paid. If you don't understand that relationship. what else don't you know?

Perhaps ask your accountant? Or perhaps get one...

[jamesbrown]

Knock yourself out. BTW, your last question makes no sense, so you should definitely get an accountant if you don't have one already.

[TheCyclingProgrammer]

No idea - except I thought it was a personal liability, so nothing to do with YourCo.

Employers are obliged to collect student loan repayments after receiving a start notice from HMRC if their payrolled earnings exceed the threshold.

Dividends don't count towards this threshold when deciding if deductions should be made via PAYE but they do for the employee when filling out their tax return.

[TheCyclingProgrammer]

Cheers got my answer although I just read my question again what I wrote didn't quite make sense. Sorry guys. I know the relationship of corp tax and dividends. I also have an accountant who I was going to ring tomorrow as I just though of this tonight. Thought I'd ask here first in case it don't get time tomorrow. Wanted to know what was the most tax efficient way of planning for student loans at self assessment. Was distracted and looking into multiple things when asking the question.

Out of interest, why are you paying yourself a salary high enough to result in automatic student loan repayments? You'd have to be on a salary of over £16k ish.

[Craig at Nixon Williams]

You will be liable to student loan repayments on your gross income for the year as declared on your self-assessment - this will be comprised of your salary and dividends.

As the repayment is calculated on gross earnings, it works out to be 10% of the net dividend.

[MCC7]

I asked my accountant about this. He worked out a figure. I didn't question it, just paid it and moved on. That's what I pay him for.

[TheCyclingProgrammer]

This is as I understood. Irrelevant of salary which I am on £0, dividends are included too.

I've just re-read your original post as it wasn't very clear, it seemed as though you were making SLC payments via PAYE through your own Ltd company but I'm guessing you meant you previously did when you were in full time employment?

In any case, as Craig said, it will be calculated on your self-assessment on your gross earnings including dividends (grossed up) and any salary you've taken.

But remember if you do pay yourself a salary in excess of the weekly threshold (though there is no good reason I can think of for doing so) then YourCo will also have an obligation to deduct student loan payments through its own payroll (you'll probably receive a student loan start notice from HMRC addressed to YourCo soon after starting your payroll).

[PerfectStorm]

That's correct when I was employed full time. I have already earned the yearly tax free salary amount prior to just starting contracting 3 weeks ago. So "salary" is nil and all earning from now till end of this tax year are dividend based only.

Will calculate (roughly) what I'm taking home via dividends and put aside 10% to cover student loans for self assessment at end of the tax year.

Cheers

Don't forget there's also an amount to put aside for personal tax on those dividends.

That seems to be the rather annoying thing about this contracting lark - the first few months pay better than all the ones after it as you then break threashhold.

Best thing to do - you're paying for an accountant, ask for them to do a running total of your student loan + personal tax liability with your accounts each month. Then stick it under the mattress.

[TheCyclingProgrammer]

Don't forget there's also an amount to put aside for personal tax on those dividends.

Only if OP chooses to become a higher rate tax payer.

Many people I'm sure can live on the approx. £3100 a month take home from basic salary + dividends up to the higher rate threshold and if you can it's advisable to leave any remaining profit in the company and build up a bit of a warchest. You will be thankful if you have no contract bringing in more money.

If you do take regular dividends above the higher rate threshold then you really make sure you put money away every time you take a dividend to cover not only your first tax bill but the payments on account too.