Do Pension Contributions Affect Student Loan Repayments? - Self Assessment

Sea

When filling in my self-assessment, if I fill in my pension contributions for the year, it lowers the amount of student loan repayment I'm due to pay. Should it? I'm a self-employed, basic-rate tax payer.

Eg. If my earnings are £25,000, it deducts my £3000 pension contributions (gross figure: my contributions + tax relief) from my earnings, so I'm paying student loan repayments based on £22,000 of earnings, rather than my actual earnings of £25,0000.

All my tax and national insurance is calculated correctly, based on the £25,000 figure, it's only the student loan repayment that is affected.

The sa110_notes_2023 guidance file (Page TSSN 50-51) seems to indicate this is the case, that pension contributions are deducted from the total income before working out the student loan repayment, however I'd have thought if this was the case, there'd be lots of advice out there for basic-rate tax payers not to forget to fill in their pension contributions section, but I only ever hear advice telling higher-rate tax payers to do this.

Am I missing something? 

canarydan

I'm no expert, but I'm as certain as I can be that student loan deductions are based on your gross income, not your net adjusted income, so pension contributions should not make any different to what you need to pay back.

Sea

canarydan said:

I'm no expert, but I'm as certain as I can be that student loan deductions are based on your gross income, not your net adjusted income, so pension contributions should not make any different to what you need to pay back.

That's what I thought too, but when filing online HMRC automatically deducts my pension contributions when calculating the student loan repayment...

The only way I could fix it is to delete the pension contributions section of the form, which doesn't seem right either...

And the notes on the SA110 form seem to suggest you do deduct pension contributions...

ultrapasty

I can confirm what the OP describes is correct.

I'm also a self-employed, basic-rate sole trader tax payer, with a student loan, and making personal pension contributions. I just had the same question after submitting my return and wondering how they'd calculated the student loan repayment, which wasn't what I expected.

It's not clearly documented anywhere on official websites, but I called HMRC who helpfully got a technician to look into this and get back to me.

They said that your gross personal pension payments (what you pay + the basic rate tax relief) ARE indeed deducted from your total income on which student loan repayments are calculated.

So to give an example, for the 23-24 tax year:

• £35000 example taxable income
• -£5000 example gross pension contributions (i.e. £4000 net paid in, £5000 gross with relief at source added)
• -£22015 threshold for repayments on plan type 1
• = £7985 amount on which student loan repayment will be calculated
• £7985 * 0.09 repayment rate of 9%
• = £718 student loan repayment. Not £1168 as you'd expect if pension contributions weren't a factor.

I wish they made this clearer somewhere. Hope this helps someone else avoid hours on the phone with HMRC!