The loan charge and disguised remuneration schemes

The loan charge is a tax charge introduced to stop disguised remuneration arrangements, where individuals received their earnings as loans instead of as salaries or wages¹. In these schemes, money that was really pay for work done was routed through a third party, for example someone who was not the employer of the person who received the loans, and handed over as a "loan" that was never expected to be repaid¹. Because it was labelled a loan, no Income Tax or National Insurance contributions were deducted at the time. The loan charge treats those outstanding loans as income, so the tax that was never paid becomes due in a single hit.

If you still have an unpaid loan charge liability, you do not have to simply pay it in full. HMRC's guidance is that settling through the loan charge settlement scheme "will be financially better for most individuals and employers" than paying the loan charge itself¹. The settlement offer is subject to a maximum £70,000 reduction, includes a reduction for promoter fees, and deducts a further £5,000 from the liability². This page explains which loans are caught, how the charge and the settlement are worked out, what happens if you do not settle, and where to get help.

What the loan charge is and why it was introduced

The loan charge was introduced to stop disguised remuneration arrangements where individuals received their earnings as loans, instead of as salaries or wages¹. The typical arrangement worked like this: instead of paying you a salary, an employer or agency paid money into a scheme, often an offshore trust, and that third party, someone who was not your employer, "lent" the money to you¹. The paperwork said loan, so no Income Tax or National Insurance was deducted through PAYE, and the loans were designed never to be repaid.

HMRC's view, set out in its guidance on schemes affected by the loan charge, is that the loan charge applies to most disguised remuneration schemes which seek to replace income with loans or other forms of credit⁴. In other words, it is not limited to one specific product: any arrangement whose effect is to convert what is really earnings into a loan or another form of credit falls within its reach. That includes arrangements sold to contractors, agency workers and employees across many industries.

The charge exists because these schemes left a tax liability that had never been collected. Rather than chasing each year's underpaid tax separately, often through lengthy enquiries, the loan charge brings the outstanding loan balances into charge as income in one go. Two settlement opportunities now exist alongside it: you can settle your outstanding loan charge liability using the loan charge settlement scheme, or the disguised remuneration 2020 settlement terms¹. HMRC's guidance states that settling "will be financially better for most individuals and employers"¹.

Which loans the loan charge covers: 9 December 2010 to 5 April 2019

The loan charge applies to loans that meet three conditions. The loan was made on or after 9 December 2010¹. The loan was provided by a third party, for example someone who was not the employer of the person who received the loans¹. And the loan was not paid back in full by 5 April 2019¹.

The end date of the window depends on how you were engaged:

For employees, the loan charge applies to loans received before 6 April 2019¹. For self-employed people, the cut-off is earlier: loans received before 6 April 2017¹. HMRC's reporting guidance confirms the same underlying scope: the loan charge applies to disguised remuneration loans made on or after 9 December 2010 that were still outstanding on 5 April 2019⁵. Trade-based and self-employed schemes are covered too, with the loan charge applying to outstanding loans made between and including the same dates⁵.

If you used a disguised remuneration scheme and have not yet told HMRC about an outstanding loan balance, HMRC's guidance is that an outstanding disguised remuneration loan balance still needs to be reported if it has not already been, though interest and penalties may apply for reporting after the deadline³. Reporting the balance is separate from settling it: reporting tells HMRC what is outstanding, while a settlement fixes what you pay.

What HMRC's later changes did to scope

The scope of the loan charge was narrowed after an independent review, and HMRC published guidance so individuals could find out how the changes affect them³. The effect of the changes is that loans made after 5 April 2016, and before 6 April 2017 if you were self-employed, or before 6 April 2019 if you were employed, will be subject to the loan charge whether or not HMRC has opened an enquiry or raised an assessment³.

The documents describe the scope in two ways, and they do not fully agree. One statement of the rules is that the loan charge applies to loans made on or after 9 December 2010 that were still outstanding on 5 April 2019, where the loan was made in an unprotected year³. Another statement from the same guidance is that loans made after 5 April 2016, and before the relevant cut-off date, are subject to the charge whether or not HMRC has opened an enquiry or raised an assessment³. The practical difference concerns loans made in the earlier part of the window: whether a loan falls within the charge can depend on whether HMRC had opened an enquiry into the year it was made. If you have a loan from before 5 April 2016, the position of your specific loan depends on these rules, and HMRC's "find out how the changes affect you" guidance is the place to check³.

The government's overview of loan schemes and the loan charge has also been updated over time, including updated guidance on whether a loan agreement is unenforceable, which matters if a scheme or trust is now asking you to repay the loan to them rather than to HMRC⁶.

How outstanding loans are taxed under the loan charge

The loan charge works by treating the outstanding balance of a caught loan as income. The charge applies to disguised remuneration loans made on or after 9 December 2010 that were still outstanding on 5 April 2019⁵. The balance that was outstanding on that date is what enters the charge, not the original amount lent if some of it had been repaid before then.

For the settlement scheme, HMRC uses a simplified calculation to work out an amount that represents the tax and National Insurance due on your loan charge income, in the tax year you received that income². This means the settlement does not simply apply one rate to the whole balance: it looks back at the years the loans were received and works out the tax and National Insurance that would have been due on that income in each of those years, then brings the result together into a single settlement figure. The reductions described in the next section are then applied to that figure.

Because the charge treats the loan as income, it interacts with the rest of the tax system in the usual way. The amount of tax depends on the income tax bands and rates that applied in the years the loans were received, which are covered in income tax: bands, rates and how your bill is worked out. National Insurance contributions follow their own rules, covered in National Insurance: classes, rates and what it pays for. If you are still in a scheme and receiving loans, the position for future years is different again, and reporting rules apply⁵.

The loan charge settlement scheme: up to £70,000 off

The loan charge settlement scheme is the current route for dealing with an unpaid loan charge liability. It applies to you if you are an individual or an employer and you have an unpaid disguised remuneration loan charge liability, including Income Tax, National Insurance contributions and late payment interest arising from the loan charge, from earlier tax years, or included in a settlement agreed after 1 June 2021².

The settlement offer is built up through a series of reductions, subject to a maximum £70,000 reduction². The offer includes a reduction for promoter fees, the fees that were paid to the scheme promoter to set up and run the arrangement². It then deducts a further £5,000 from your liability². The total of these reductions cannot exceed £70,000².

The scheme can also pick up related liabilities. Other outstanding disguised remuneration liabilities are included if they are not otherwise covered by the scheme and were subject to an enquiry opened, or included in an assessment issued, by HMRC on or before 26 November 2025². Inheritance Tax can also be affected: charges may arise every 10 years after money is put into the trust used in the arrangement, when a loan is written off, and when the trust ends². Under the settlement, unpaid Inheritance Tax liabilities no longer payable are those that relate to the loan charge arrangements being settled, have already arisen, or arise within 3 months of the date on the settlement offer letter². How trusts are taxed more generally is covered in how trusts are taxed and inheritance tax: thresholds, rates and who pays.

Not everyone is eligible. HMRC is not required to make offers to those it suspects of being promoters or introducers of avoidance arrangements². If you were the person who sold or introduced the scheme rather than a user of it, the settlement scheme is not for you.

How to accept a settlement offer and pay in instalments

Accepting a settlement offer is a formal step. To accept your offer you must fill in, sign and return the acceptance form to HMRC, by post or by scanned email². This applies even if the offer reduces the amount you need to pay to £0: the form must still be returned, or the original loan charge liability must be paid instead².

The employee can accept their settlement offer straight away in two situations: if the amount they need to pay is £0, or if they want to settle now without waiting for the employer settlement attempt². So if you would rather not wait while HMRC tries to settle with your employer first, you do not have to.

Payment terms are available. You can pay by instalments for up to 5 years under the new terms, and depending on your circumstances you may be able to pay over a longer period². You will pay interest when paying by instalments, and your caseworker will explain this and send a new settlement offer that includes the interest².

Before any of that, talking to HMRC carries no obligation. HMRC's guidance states plainly: "Contacting us will not commit you to settling your loan charge liability under these terms."¹ That means you can find out what your position is, and what a settlement would look like, before deciding anything.

The steps in order are:

1. Contact HMRC about your loan charge liability; this commits you to nothing¹.
2. Receive your settlement offer, setting out the amount to pay after the reductions².
3. Decide whether to wait for the employer settlement attempt or accept straight away, if you are eligible to accept immediately².
4. Fill in, sign and return the acceptance form by post or scanned email, even if the amount is £0².
5. If paying by instalments, receive a new settlement offer including the interest, and agree the payment schedule of up to 5 years or longer².

Once accepted, the settlement becomes a legally binding contract between you and HMRC, even if you have nothing to pay, and it ends any open compliance checks into the covered arrangements². That finality is part of the deal: the certainty of a closed liability in exchange for the agreed amount.

Will the employer be asked to pay first?

Where an employer was responsible for deducting PAYE, HMRC will try to settle the loan charge liability with the employer first, if the employer still exists, and will write to the employee at the same time². This is because the employer was the party that should have operated PAYE on the earnings in the first place, so the unpaid tax and National Insurance is in part the employer's liability.

The practical effect for an employee is a waiting period while HMRC and the employer negotiate. If the employer settles, the employee's own position may be reduced or cleared. If the employer no longer exists, HMRC cannot settle with it, and the employee's offer stands on its own. And in any event, the employee can accept their settlement offer straight away if the amount to pay is £0 or they want to settle now without waiting for the employer settlement attempt².

What happens if you do not settle

If you do not accept a settlement offer, you will need to pay the full loan charge liability². HMRC will then contact you under its normal processes, and you may need to pay other charges such as late payment interest until the liability is paid in full².

The contrast with settling is stark. A settlement offer is subject to a maximum £70,000 reduction, includes a reduction for promoter fees, and deducts a further £5,000 from the liability². Declining the offer means paying the loan charge as it stands, plus any interest and penalties that have built up, including possible penalties for late reporting of the outstanding loan balance³. HMRC's guidance is that settling will be financially better for most individuals and employers¹.

There is also the matter of open compliance checks. Accepting a settlement ends any open compliance checks into the covered arrangements². Not settling leaves those checks open, which means the uncertainty continues alongside the debt.

Refunds under the Disguised Remuneration Repayment Scheme: now closed

Before the current settlement scheme, some people had already settled with HMRC under earlier terms. The Disguised Remuneration Repayment Scheme 2020 existed to put some of those people back in the position they would be in under the later, more generous terms. It could refund amounts that were paid in disguised remuneration scheme settlements, and waive amounts due that had not yet been paid, in respect of voluntary payments of Income Tax and National Insurance contributions⁷. It could also refund or waive interest paid, or due to be paid, in settlement on voluntary restitution⁷. Where an applicant was eligible for a refund, any adjustment amount reduced the amount that was repayable⁷.

The scheme had exclusions. HMRC would not refund any voluntary payments of Income Tax or National Insurance contributions made in respect of amounts paid or contributed through a disguised remuneration scheme if either no loans were made from the scheme, or the amounts related to a loan which was not outstanding at the date the settlement was made⁷. In other words, the scheme was about loans: settlements covering money that never took the form of an outstanding loan were outside it.

The scheme is now closed. The deadline for applications has passed and HMRC no longer issues application forms⁷. And it was final when it was open: once all the conditions were met, an application was treated as having been fully and finally determined, meaning the applicant would not be eligible for any other refund or waiver of voluntary restitution relating to the same settlement agreement under the scheme⁷.

For anyone who settled in the past and is wondering about a refund, the position is therefore that this route no longer exists. The current loan charge settlement scheme is the live option, and it applies to those with an unpaid liability, including liabilities included in a settlement agreed after 1 June 2021².

How many people are still affected

The loan charge reaches a wide population because disguised remuneration schemes were sold widely over many years. The loans caught run from 9 December 2010 to 5 April 2019 for employees and to 5 April 2017 for the self-employed³, and the charge covers most disguised remuneration schemes which seek to replace income with loans or other forms of credit⁴. Trade-based and self-employed schemes fall within the reporting rules alongside employment-based ones⁵.

Who is still affected depends on what has happened since. People who settled by the original deadline of 30 September 2020, or under the 2020 settlement terms, have dealt with their liability¹. People with an unpaid liability, including one included in a settlement agreed after 1 June 2021, are within the scope of the current settlement scheme². People who never reported their loan balance remain exposed to the charge itself plus interest and penalties for late reporting³. If you are unsure whether a loan you received is caught, HMRC's guidance on how the changes to the loan charge affect you is the place to check, and contacting HMRC does not commit you to settling¹.

Where to get free help

The first port of call is HMRC itself. Contacting HMRC will not commit you to settling your loan charge liability under the settlement terms¹, so you can ask questions about your own position without triggering anything. If you are unhappy with how HMRC has handled your case, there is a formal complaints route, covered in how to complain about HMRC and escalate to the Adjudicator, and disputes can be challenged through HMRC internal review or the tax tribunal.

If the liability, settled or not, has left you with debts you cannot manage, free debt help exists and is covered in debt: a complete guide to help, solutions and your rights. Be careful about who you turn to for help with the loan charge specifically. HMRC has warned investors about approaches offering to recover lost funds for an up-front fee, made "with the false promise of recovering lost funds for an up-front fee"⁸. Firms that cold-call people caught by tax avoidance schemes and charge fees in advance to "fix" or "recover" their money are a known pattern, and the same caution applies to anyone offering to get your loan written off. General warnings about fake HMRC contacts are covered in fake HMRC calls, texts and emails, and wider scam warnings in scams and fraud: a complete guide.