New guidance from HMRC confirms that profits used to assess student loan repayments and entitlement to student finance will include transitional profits from basis period reform.
Student loan repayments for self-employed taxpayers are based on the profits reported in each tax year. For the tax years 2023-24 to 2027-28 this will be your normal profit plus the portion of the transitional profits you decide to bring into that year. The additional profit could cause a dramatic increase in your student loan repayments in one or all of the five years.
Transitional profits are spread evenly over the five years by default, but you can choose to bring more than the minimum additional profit into any of the years. It might be possible to manipulate the spreading of your transitional profits so that your income remains under the threshold for one or more of those years.
If you are self-employed and you are applying for student finance such as a maintenance loan for your child, your income will be taken into account. Normally the assessment is based on the tax year two years before the application but you can opt to use the current year figure if you can show that your income has fallen by at least 15%.
If because of basis period reform the income that you report in 2023-24 is 15% or more lower than in 2021-22, it would be better to use the current year amount for the student finance application.
There are many factors to consider when determining the most efficient way to spread the transitional profits over the five-year period. We can help you calculate the most beneficial allocation for you.