Student loan deductions before or after tax

buttonmoon

I have just rang the SLC company as I have under 3 years to go on my student loan (income contingent plan 1) and I want to swop to direct debit as so as I go under two years.

However, the person to the end of the phone said it is better to have payments taken out via PAYE as they are taken before tax and that DD payment are taken from your taxed salary? Surely this is wrong as having payments taken from salary would not produce a tax saving as they don't reduce your salary!

Poolie

The PAYE method is calculated on your gross salary. The Direct Debit does come directly out of your bank and therefore is net tax.

The repayment do not reduce your tax liability as they are not linked to your tax code (personal allowance).

atypical

All student loan repayments are taken from net salary whether via PAYE or direct debit.

agrinnall

atypical wrote: »

All student loan repayments are taken from net salary whether via PAYE or direct debit.

Do you understand the difference between net and gross? Because Student Loan on the PAYE method is definitely taken from gross salary.

See page 9 of http://www.sfengland.slc.co.uk/media/666045/sfe_t_c_guide_1415_d.pdf

which states "income each year before tax", i.e. gross.

Lokolo

Student loan repayment is calculated from gross salary, but paid from net. There are no "tax advantages" to paying via PAYE compared to DD. Unfortunately.

buttonmoon

:mad:That's what I thought lokolo. Tax/NI is taken off gross salary and student loan is calculated on gross salary. However, it doesn't meant that student loan is deducted before tax and NI off your gross salary this meaning you earn less so pay less tax/NI!

I thought he was telling me a load of rubbish that having deductions through PAYE would be cheaper for me! :mad: