Student Loan Considerations for Limited Company Directors

Question

There are quite a few different questions on (UK) student loans in this forum, and elsewhere, but searches here have not posed the question I am looking the answer for right now. Similarly, searches in the wider web have provided answers which do not look right to me for the answer I am looking for, but perhaps I am misreading the instructions.

To begin, the SLC says for the information they need:

If you're living in the UK

You’re employed

Complete all of your employment details in Section 2. Don’t forget your:

• Employer’s PAYE reference number – you’ll find it on your P60 and sometimes on your payslip. It will be three numbers followed by a combination of letters and numbers. Contact your payroll department if you can’t find it.

• Payroll or branch number – if you have one, you can get this from your payroll department.

You’re self-employed

Complete Section 2 with your Unique Tax Payer Reference (UTR) number.

You can find your Unique Tax Payer Reference (UTR) number in the top right hand corner of your Self Assessment tax return. This is a ten digit number provided by HMRC.

And, insofar as HMRC is involved, a director of a limited company is an employee (yes, with both extra rights extra obligations but even so (or not?)), especially if the PAYE system has been set up and regular monthly salaries are being paid through PAYE. However, searches such as this say that everything should be done via the Self-Assessment.

Now, while I agree with the fact that HMRC can only know someone's real income over a year at the end of the annual period when a Self-Assessment needs to be submitted, I am unsure why SLC is completely ignoring that people are probably being paid in part via PAYE and why there's an extra need to report this situation. Can this extra reporting be explained by a logical deficiency of data which would otherwise occur despite HMRC forwarding all relevant information to SLC in any case? After all, a similar situation could arise by dividends from investments, but in such a case SLC does not seem to stipulate a declaration by the recipient of the dividends (though they should still be reported to HMRC via Self-Assessment).

Similarly, if the PAYE threshold was crossed as a director, wouldn't HMRC still be deducting the relevant percentage of all salaries above the Plan 1/2 threshold?

Of course, the final point where the director of the company needs to ensure they have the relevant funds at the end of the year to cover any payments is still immutable (as far as I can see). It's just that it seems ridiculous to have (essentially) double-reporting of what's going on.

Answer 1

I suspect you may be overthinking things somewhat... coupled with the fact that the guidance in the two links you gave (but especially the Boox one) cannot be expected to cover every circumstance in precise detail, but will concentrate on the most common situations.

As I see it from those two links, the fundamental thing that SLC need is a link to your HMRC record so that they can match-up any payments HMRC have passed-on (whether from PAYE deductions or through SA calculations). This link can either come from a PAYE Reference Number (+Payroll Number if used), or from someone's UTR.

The SLC page lists these as two separate categories ("employed" or "self-employed") but they are not mutually exclusive. While someone who is self-employed will have completed (or will need to complete) a Self Assessment form, and will have a UTR, that doesn't mean that someone who is "normally" employed won't have completed an SA form nor have a UTR. Most normally employed people won't have done, but some will have. I suspect that if you were in normal employment, and had completed an SA and received a UTR, you possibly could quote that to the SLC (but, at the same time, I can see that this might confuse them, so I wouldn't suggest doing so without asking first).

As far as company directors are concerned, the SLC site probably doesn't list them as an explicit category (a) because I strongly suspect that the number of people with student loans that become company directors is very small, and (b) one or both of the first two categories will cover them (i.e. supplying either a PAYE Reference or a UTR).

Similarly, the Boox page doesn't cover every situation, but only the most typical ones – which, I suspect, is that of the few people with a student loan who do become a company director, most (of that small number) will be directors of relatively small companies (if not little more than one-man-bands), and therefore might not have the systems in place that a larger company would.

As this page on Company Formation says, if you pay yourself (as company director), then you must send a PAYE/RTI (Real Time Information) return to HMRC. However, while I suspect it is possible to set things up to deduct SLC repayments at source, I suspect most won't have done this, and will rely on their Self Assessment form to calculate the SLC liability (which HMRC will pass on), hence Boox's assumption "Unlike PAYE, deductions are not made on a regular basis from your income".

As a company director you will have both a PAYE Reference and a UTR, and probably either could be given to the SLC (Boox only says "As a Limited Company Director and shareholder they will then typically ask for your Unique Tax Reference (UTR) Number"). If the UTR is preferred, it is probably because it makes it more explicit that you are under Self Assessment (and are therefore not "just a normal employee").