Reply to: Double checking my personal Tax... student loans

[d000hg]

This all goes against the advice from my accountant who said that I need to put away 10 % of my next dividend

Mine too, so far anyway.
10% though is just a random number, it's 9% on gross income over £15000... the question is purely if dividends are included in that.

[dx4100]

Well I phoned up HMRC's Employer Helpline today. I asked them explicitly if dividends are to be included and was told that they definitely are not, that unlike personal tax where dividends can be included in calculating the amount due, student loan payments are not calculated in the same way.

I have not achieved a final agreement where we all stand on this with my accountant yet, that's the final piece of the puzzle... I asked them to contact HMRC and double-check my findings.

This all goes against the advice from my accountant who said that I need to put away 10 % of my next dividend

[kingjeff]

d000hg

can you post when get a confirmed response on how student loan payments are calculated from you self assessment tax return

Thanks

[d000hg]

Well I phoned up HMRC's Employer Helpline today. I asked them explicitly if dividends are to be included and was told that they definitely are not, that unlike personal tax where dividends can be included in calculating the amount due, student loan payments are not calculated in the same way.

I have not achieved a final agreement where we all stand on this with my accountant yet, that's the final piece of the puzzle... I asked them to contact HMRC and double-check my findings.

[ASB]

The implication from the scheme is that divis do NOT come into it. This is because the loan repayments from the later scheme are supposed to be made by the employer (though you have a duty to ensure this happens). It specifically states that it is income as declared on P60 - i.e. earned income. This doesn't fit very well with dividends since the employer has no right to know what dividends (or indeed other earnt or unearnt income you receive).

However it also doesn't fit in very well with multiple employments, though the obligation to notify the SLC of total P60 income if payments aren't deducted covers this.

Good luck in finding out.

[d000hg]

No official word, but a helpful person on another forum pointed me to this document: http://www.hmrc.gov.uk/helpsheets/e17.pdf

She drew my attention to this snippet:

Work out the employee’s earnings for Student Loan

deduction purposes (identical to the earnings calculated

for Class 1 NICs).

I don't follow completely, but apparently this part shows dividends do NOT come under student loan definition of income. She says she phoned HMRC's helpline who explicitly told her dividends are not included in the calculation.

I will post more after I call them myself and see what my accountant has to say, who also wanted to research before committing to an answer.

[kamikz]

I'm in the same boat and unfortunately don't know the answer either. So please keep us updated on this and I'll also get on to my accountant.

If divi's are included then I'm going to have to look at my wife taking shares and thus more out of the company as at the moment I have 100% shares as I can live off of dividends that keep me below the higher rate.

[d000hg]

Grr. I call HMRC and they tell me to phone SLC. I call SLC and they tell me to call HMRC.

I'll call my accountant and chase them for an answer but even then unless they can point me to something online I've no way to tell they're correct or guessing... maybe there aren't many company directors who have income-based student loans, since the first year those loans were issued would make most recipients 30 or younger.

[d000hg]

It may in fact be beneficial to pay it off sooner rather than later if you can afford it.

Nope, right now it's free (I started Uni in 2000).

[ASB]

If I recall correctly there were a number of schemes. Some of these did include unearned income (e.g. dividends) in the total income available for the purposes of calculation repayment, some didn't.

I think it depends on when the loans were taken.

It may be that your repayment arrangements are such that you could (if you chose to) exploit this to your advantage, however given the interest rates charged etc all you are likely to do is defer the pain until salary does hit trigger values. It may in fact be beneficial to pay it off sooner rather than later if you can afford it.

At least one of the loan schemes used requires employers to make deductions from salary paid, so check if this is appropriate for you.

HMRC helpline might be a good start.

[d000hg]

I found this other thread on the subject: http://forums.contractoruk.com/accou...repayment.html

Consensus seemed to be dividends are treated as income but nobody posted any links specifically about being a company director, and the HMRC/SLC wording is either that you're employed or self-employed.

I'm expecting to be paying it but it would be nice to see something official in back and white, and also to know what my income is as far as SL is concerned... gross salary (obviously) + gross or net dividends? Dividends are 'unearned income' it seems under SLC wording so it's not clear at all to me.

[d000hg]

I believe dividends are treated as income in a similar fashion as for establishing personal tax but it's one of the things I can't find a clear answer to. I'm not sure why that is, there must be loads of people in their late 20s (the scheme I'm on was introduced in '98) who own a business.

[Hex]

Firstly, just to double-check my understanding. Last year I received salary from MyCo of £11k and took dividends totalling £31.5k. I reckon this is classed as gross income of 11000+31500/0.9 ~ £45k. Minus about £40k tax brackets means around £5k is taxable, i,e about £1000 tax. Sound about right?

Secondly, I have about £10k student loan outstanding, and it's a modern income-tested one from 2000-2003. I can't find a quick answer of how much they will be owed or a contractor-friendly SL calculator. One thing I'm fairly sure of is that they will not be considering salary alone, can anyone point me to link explaining it clearly?

I did find this on MoneySavingExpert:

But I'm still not clear. What is 'income' here? Gross salary + gross dividends would be £45k so worst-case I'd be paying 9% of £30k = £2700?

It may, or may not, be relevant but if you're taking dividends from a UK Company that you work from then this does NOT make you self employed. You are probably an employee of your Ltd Company. Of course, this may not affect the student loan stuff at all.

[d000hg]

You must be very cynical.

It reads to me like he wants to know how to calculate how much to pay towards his student loan - pretty non-standard and reasonable question IMO.

I wouldn't know how to avoid paying it, and I've no idea how anyone got that impression from my post. I just want to be sure the money I set aside in April is enough, and if there is a surplus I can safely use... before getting official answers from my accountant when he does my return.

[Moscow Mule]

WHS.

I didn't go to uni but learnt my trade earning sh*tty money and running up debt which I paid off at commercial rates.

Unlucky...

You're probably doing alright now though?