Best way to repay underpaid tax

jonny2510

I've just completed my first SA Tax Return, only to find I owe approx £900 in Student loan repayments.

The underpayment seems correct based on my income for the year, so I'm not disputing it (the fault probably lies with me for not picking up earlier that I wasn't repaying it).

What I want to know is whether it's better paying it off straight away, or letting HMRC take it out of next year's (12-13) PAYE coding.

My initial thought's are the money is better in my bank earning interest for me, than HMRC's, so I should pay it off over next year with my tax code.

Is this a no-brainer, or have I missed something (they don't charge interest on this amount do they)?

Mikeyorks

Bit more detail required?

If you're purely self employed then it would be unusual (9% over £15k) to only have a liability for Student Loan. It implies a profit of £25k which would usually create a tax and NI liability as well. And of a value which exceeds the amount that can be coded out. Unless there are losses / allowances which mitigate significantly?

But if you're income is primarily PAYE ...... then SA can create anomalies with Student Loans. In particular if you have > 1 job. One or two of the anomalies are resolvable - most aren't.

jonny2510

Mikeyorks wrote: »

Bit more detail required?

If you're purely self employed then it would be unusual (9% over £15k) to only have a liability for Student Loan. It implies a profit of £25k which would usually create a tax and NI liability as well. And of a value which exceeds the amount that can be coded out. Unless there are losses / allowances which mitigate significantly?

But if you're income is primarily PAYE ...... then SA can create anomalies with Student Loans. In particular if you have > 1 job. One or two of the anomalies are resolvable - most aren't.

Sorry, more detail: I'm not self employed, just regular PAYE employee with one job. I recently (10/11 tax year) let my first property (very little income after expenses), hence the reason for filling out the SA, which has led to this discovery.

I'm not disputing the amount (unless you think I have cause to), and accept it's most likely my fault I'm in this situation.

I just wanted advice on the best (for me) way to pay it?

Your mention of anomalies however does worry me. Could I ask for more information/what you mean by this?

Mikeyorks

jonny2510 wrote: »

Your mention of anomalies however does worry me. Could I ask for more information/what you mean by this?

The major anomaly is where you have 2 or more PAYE jobs and - for some reason - are required to file under SA. If none of the jobs pay more than £15k then no SLC will be due under PAYE. But - when aggregated on the SA Return - SLC will (correctly) be charged on the composite amount of PAYE income. Which can be significant and a bit of a shock.

In your case - there's something odd. Unless the 'other income' is significant - and you say it's not - then £900 seems OTT. See here (final para) :-

http://www.hmrc.gov.uk/students/repay_loan_through_sa_6_3.htm

If you look at this :-

http://www.hmrc.gov.uk/leaflets/csl1.pdf

(top of Page 2 ..... 'SA customer with PAYE income') it will hopefully clarify why I'm puzzled. Have you (still on Page 2 - but look further down to 'Why you might need to pay more ..') entered the SLC amount your employer has deducted correctly?

Credit for PAYE employer deductions will always be given to you in the SA calculation of amounts due, providing you enter those sums when you complete your annual tax return.

If your employer isn't deducting SLC (and you're over £15k) ..... have SLC notified you (and therefore your employer via HMRC) to start deductions?

http://www.hmrc.gov.uk/students/reps_how_when_howmuch_6_1.htm

Summary : If your employer is deducting SLC ..... then you need to enter that as a credit on the SA Return and it should largely offset the £900? If your employer isn't deducting SLC - then should you be ticking the box on the SA Return to indicate you are currently liable for SLC deductions? As the question is phrased :-

If you have received notification from the Student Loans Company that repayment of an Income Contingent Student Loan began before 6 April 2011, put ‘X' in the box

I suspect not - and that will equally remove the £900 (but you should then take it up with SLC, to get deductions underway via PAYE, if you're now past the April following conclusion of your courses)

jonny2510

Thanks for the information Mike,

Currently my employer does not deduct SLC, hence me entering £0 on the form for SLC. I don't have other significant income.

The reason I'm confused (it doesn't take much!) is the question:

If you have received notification from the Student Loans Company that repayment of an Income Contingent Student Loan began before 6 April 2011, put ‘X' in the box

I think I did receive one, only it was back in 2005.

EDIT: Detailed reasons removed so as not to give out too much info online!

What does this mean I should answer for the question? I certainly don't want to lie/incriminate myself - hence getting into this situation in the first place.

Does this mean contributions should only start this year (the year after my income rose above 15K), or should they have started in the 10-11 tax year (as soon as I started earning over 15K), bearing in mind that back in 2005 I received the letter stating payments should start?

Giddytimes

You should have started paying it as soon as your income rose above 15k, it's usually automatic.

In my experience the SLC don't chase very hard, they will probably be happy with you just paying it off over the next 12 months, give them a ring and see, like you say the money is better earning you interest.

Don't confuse student loan payments with PAYE, it's not the same thing, that's just the vehicle they use to collect the 9%, the Inland Revenue collect it on behalf of SLC and pay it over every April.
In my experience they won't just change your tax code to collect more, you'll likely have to set up a separate monthly DD for the arrears.

I've been trying to pay off money I owe the SLC for 18 months now, I've rang them multiple times and said I want to make a bulk payment over the phone to clear my calculated arrears (from a job abroad). They just keep telling me they can't take my money, they need to do an assessment and work out exactly how much I owe. To enable them to do this I've faxed them my earnings info no less than 20 times, they either lose it or the fax machine is broken.
I know how much I owe, 9% of everything over the repayment threshold for the country I was working in, it's hardly rocket science.
I gave up and just asked them to set up a DD for an overpayment of 300 a month, which they set up to start 1st Dec, even though I asked for it back in June. Waiting to see whether anything actually comes out.
I'm totally sick of ringing them, when they decide to get their act together I will gladly pay any arrears.


Edited to add- do make sure you ring them though, otherwise you might find yourself with an under/nonpayment charge applied to your account. Contacting them stops this.

Giddytimes

As an afterthought, isn't the student loan repayment linked to your national insurance number? Which is how they know you're working and automatically deduct payments from your wages.

If you've been working in the UK and earning over 15k you'd better check your employer has the right NI number on record for you, your NI contributions could be being logged against the wrong person.

Mikeyorks

jonny2510 wrote: »

Does this mean contributions should only start this year (the year after my income rose above 15K), or should they have started in the 10-11 tax year (as soon as I started earning over 15K), bearing in mind that back in 2005 I received the letter stating payments should start?

Difficult one.

The SLC (re)payments are commenced by HMRC issuing a Start notice to your employer. Thereafter it should be automatic whenever your salary exceeds £1250 per month. If you move jobs the P45 has an indicator on it that you're in SLC repayment mode - so it follows you. No direct read across to the NI number.

If you did receive circa £25k last year (the £900 underpayment suggests £10k @9% above £15k?) ...... then it's possible SLC may start asking questions. So you could leave the SA as it is - but ask for it to be coded out (deadline for that end Dec). But you do need to have a word with your pay people ....... and that will mean you're going to be paying both the arrears and the current SLC payments from Apr 2012.

Alternative, which would be my route, is to edit the Return and remove the 'X' and £0 ...... and have words with your Employer and get it sorted with immediate effect (assuming you're still above £1250pm?). That negates the 'employer generated arrears of £900' - but puts you at mild risk of SLC issuing an underpayment notice. It does mean you're playing a bit with the wording on the SA Return ... but I'd salve my conscience to the effect it's only the fact you've suddenly had to file for completely dissasociated reasons that's brought it to light! Otherwise it could have gone on a while if you were purely PAYE - and you are still paying SLC interest. And you will - in any event - be resolving it via your employer with immediate effect!

Savvy_Sue

jonny2510 wrote: »

Is this a no-brainer, or have I missed something (they don't charge interest on this amount do they)?

Interest was charged from the moment you took the loan out, and will continue to be charged until you pay it all off. I don't think they charge more interest because you haven't started paying it off as you should have done, it's just that you haven't reduced the amount you owe, and therefore you haven't reduced the amount of interest you owe.

Having said that, it's probably the most favourable rate of interest you'll ever have ... so certainly not worth borrowing money to pay it off!

Mikeyorks

Savvy_Sue wrote: »

Interest was charged from the moment you took the loan out, and will continue to be charged until you pay it all off.

Sorry - but I think you're misunderstanding the question?

The OP was asking if interest was charged by HMRC if he asks the £900 SA underpayment be coded out during 2012-13. Which it isn't.

Not if SLC continue to charge interest - which of course they do.

Savvy_Sue

Mikeyorks wrote: »

Sorry - but I think you're misunderstanding the question?

The OP was asking if interest was charged by HMRC if he asks the £900 SA underpayment be coded out during 2012-13. Which it isn't.

Not if SLC continue to charge interest - which of course they do.

I may well be misunderstanding the question, but I remember having to tell ALL my DSs that they were going to be charged interest from the day they took the student loan out, NOT from any later date ... so I'm aware that not all students know this!