New guidance from HMRC explains how transitional profits from basis period reform impact student loan repayments and entitlement to student finance. Learn how to manage your income effectively over the tax years for optimal repayment strategies.


New guidance from HMRC clarifies that profits used to assess student loan repayments and entitlement to student finance will now include transitional profits resulting from basis period reform.

Student Loan Repayments

 For self-employed taxpayers, student loan repayments are based on the profits reported in each tax year. From 2023-24 to 2027-28, this includes normal profits plus a portion of transitional profits. This adjustment could significantly affect repayments, potentially causing dramatic increases in one or more of the five years.

Transitional Profits

Transitional profits are spread evenly over the five years by default. However, taxpayers have the option to allocate more than the minimum additional profit into any of the years. Manipulating the spreading of transitional profits could help keep income under the threshold for certain years.

Student Finance Applications

Self-employed individuals applying for student finance, such as a maintenance loan for their child, must declare their income. Typically, the assessment is based on the tax year two years before the application. However, applicants can opt to use the current year’s figure if their income has fallen by at least 15% compared to the previous year.

Optimizing Income Reporting

 If income reported in 2023-24 due to basis period reform is 15% or more lower than in 2021-22, using the current year amount for student finance applications may be advantageous.

Expert Assistance

Determining the most efficient way to spread transitional profits requires careful consideration of various factors. Seek professional assistance to calculate the most beneficial allocation for your specific circumstances.