Student Loan Repayments If You Are Self-Employed — UK Guide

If you are employed, your student loan repayments are automatically deducted from your salary by your employer each month. If you are self-employed, it works differently — and many freelancers and sole traders are caught off-guard by how HMRC handles it.

How Repayments Work for the Self-Employed

When you are self-employed, you pay your student loan through your annual self-assessment tax return. Rather than monthly deductions, HMRC calculates your repayment at the end of the tax year based on your total self-employed income — profit after allowable business expenses.

The repayment is then due when your self-assessment payment is due — typically 31 January following the end of the tax year.

Avoiding a Nasty Surprise

The most common issue self-employed graduates face is not budgeting for their student loan bill alongside their income tax and National Insurance. A graduate on Plan 2 earning £40,000 profit would owe approximately £1,037 in student loan repayments for the year — in addition to their tax bill.

Recommendation: When budgeting for your self-assessment bill, add 9% of any profit above your plan's threshold to your estimate (6% for Postgraduate loans).

What If You Have Both Employed and Self-Employed Income?

If you have a day job (where repayments are deducted at source) and self-employed income on top, HMRC will calculate whether your combined income changes your total liability at year-end. You may owe additional repayments through self-assessment if your self-employed income pushes you further above the threshold.

Can You Use Business Expenses to Reduce Repayments?

Student loan repayments for the self-employed are based on your profit — income minus allowable expenses — the same figure used for income tax. So yes, legitimate business expenses do reduce your student loan repayment calculation.

However, attempting to inflate expenses specifically to avoid student loan repayments is no different from tax avoidance and is not recommended.

Partnerships and Limited Companies

If you operate through a limited company, your student loan repayments are based on the salary and dividends you draw from the company — not the company's overall profit. Your employer deductions will handle the salary portion; dividends are assessed through self-assessment.