Should I pay it? Can I pay it?

sn1994

Hi

I am about to graduate and I started university (a 3 year course), in 2012. I will have £27k of student debt. I lived at home so did not have any loans other than the tuition ones.

In the mean time I have started a small business which now has a turnover of about £300k.

I understand that the business cannot write off my university loans as an expense, but can it pay them directly? This would save me having to pay myself a dividend, paying tax on it (effectively twice).

All my money is in my business at the moment, I am trying to grow it even more and I get by with about £400 a month (from a different venture). This means I don't pay any income tax aside from NI contributions at the present time.

I understand I would not be expected to pay back any fees until earning £21k, but I simply do not like the idea of owing money. Furthermore, I don't like the idea that it grows at around 2% each year!

Can my business pay the fee directly, and should I do this? I can't live on £400 month forever and would expect to be earning £45k next year and climbing up to £60k shortly after that. I'd like to start on a debt free slate!

Thanks in advance

Pixie5740

Does the business not need the money? You probably won't be able to borrow that kind of money at a rate of 1.5% ever again.

Personally I'd just wait until you start earning over £21k to start repaying it and keep the money in your fledgling business.

CKhalvashi

I'd follow Pixie's advice.

Use this as a cheap loan to ease the cashflow, as this will be most important in the short-mid term for your business.

I've seen too many good ideas fail due to running out of money in the first few years, so don't let this happen to you.

Tixy

I agree with others its probably best not to repay it.

But to answer your question your Company cannot pay it on your behalf without paying tax on the amount.

Pixie5740

Tixy wrote: »

I agree with others its probably best not to repay it.

But to answer your question your Company cannot pay it on your behalf without paying tax on the amount.

Yes, this too. You can't bypass paying income tax and national insurance by getting the business to make the payment to SLC.

sn1994

Thank you for your replies, this is quite helpful

Yes, this too. You can't bypass paying income tax and national insurance by getting the business to make the payment to SLC.

Ok -- but could I not pay it to myself as a dividend (which is tax free to a certain bracket) and do it that way? Obviously the 20% corporation tax must be paid.

I agree that the interest rate is very low. With 1.5% I can get better rates in limited access savings or an ISA. So I am tempted to stooze it. But that would only be for about 15k (max ISA size)..

Indeed, I would like to keep as much cash in my business as possible. This is why I have made sure not to pay myself yet at all. My parents are of the opinion however that all debt is bad debt and should be paid off as soon as possible.

PeacefulWaters

What's your accountant's view?

Pixie5740

Your parents are wrong. Not all debt is bad debt.

Student loans are not a bad debt. I doubt that without taking out student loans that 1) I wouldn't be doing a job I enjoy, 2) My earning capacity would be anywhere near what it currently is so that 1.5% interest has more than paid for itself.

Mortgages aren't a bad debt either. You need to live somewhere so you either rent a property or effectively rent the money from the bank to buy somewhere. Very few people have the funds to buy a property outright.

CKhalvashi

sn1994 wrote: »

I agree that the interest rate is very low. With 1.5% I can get better rates in limited access savings or an ISA. So I am tempted to stooze it. But that would only be for about 15k (max ISA size)

And then £30k next year, and £45k year after.

You can save serious amounts in ISAs over the mid-term now, so never discount it.

Brock_and_Roll

Top effort by the way in getting a business off the ground and on managing £300k turnover already.

I am sure you already know this.....turnover is vanity, profit is sanity cash is reality!

i.e. Don't try and grow to fast!

bris

You can dress it up any way you want but bottom line is your going to pay tax on it.


If you take 10k as a dividend the company has already paid corporation tax on it along with all the other profit the company made.


It also counts towards your total income so will use up most of your personal allowance, so even though you don't pay tax on it twice you still have to pay tax on everything else you earn.


So the company can't pay the loan as such but what you do with your dividend is up to you, if it makes you feel any better then yes, it's paying off your loan.