What is disguised remuneration? How can I settle disguised remuneration, EBT or contractor loans with HMRC? What are the disguised remuneration settlement terms? What is the loan charge?

Subscribers, see Disguised remuneration loan charge (subscriber guide).

This is an 'At a glance' freeview introduction to the Disguised Remuneration rules.

At a glance

What is disguised remuneration?

The employment income through third parties rules, also referred to as the 'disguised remuneration' (DR) rules, are anti-avoidance legislation in Part 7A ITEPA 2003 which:

  • Provide for an accelerated employment tax and National Insurance (NIC) charge on a range of remuneration planning arrangements.
  • Were introduced to ensure that tax on employment income is not avoided or deferred through the use of trusts or sub-trusts or other intermediaries e.g. Employee Benefit Trusts (EBTs), remuneration trusts and Employer Financed Retirement Benefit Schemes (EFRBS).
  • They also apply to the self-employed in relation to contractor loan schemes since 2017.
  • Came into force on 6 April 2011, with some anti-forestalling rules from 9 December 2010 and apply to employment rewards which are earmarked or otherwise made available to an employee on or after that date

When do the disguised remuneration rules apply?

The rules apply if:

  • A person 'A' is a living employee, either former, existing or prospective, of another person 'B'.
  • There is an 'arrangement' which A (or anyone linked to A) is a party to, or which otherwise covers/relates to A.
  • The arrangement is wholly or partly a means to provide rewards, recognition or loans in connection with A's employment.
  • A 'relevant step' in pursuance of the arrangement is taken by a relevant person.

A 'relevant person' is A, B or any other person acting as a trustee.

A 'relevant step' is:

  1. Earmarking a sum of money or an asset is set aside (e.g. a sum of money placed on trust).
  2. Payment of a sum of money or transfer of an asset, to a relevant person (e.g. a loan is made available).
  3. Making assets available: an asset is made available to a relevant person without the transfer of the asset. 
  4. From April 2017 loan transfers and write off/releases of a disguised remuneration loan.

When the rules apply Income Tax and NICs (employer and employee) are charged on the value of the money or asset.


These are listed in s.554E to 554X (about 18 pages of 'small print') and include:

  • Loans made on a commercial basis that is the same terms as to the public.
  • Steps necessary for the implementation of approved arrangements e.g. for share and pension schemes.
  • From April 2017 payments of tax to HMRC.

The Loan charge

From 6 April 2019

The ‘loan charge’ applies to all outstanding third party disguised remuneration loans made since 9 December 2010 (prior to 20 December 2019 this was since 1999) which if they had been made on 5 April 2019 would have fallen within the disguised remuneration rules.

  • Loans made between 9 December 2010 and 6 April 2016 are also exempt if the avoidance scheme use was fully disclosed to HMRC and they did not take any action such as opening an enquiry. Prior to 20 December 2019, these loans were included in the charge.
  • The charge will be made up of Income Tax and NIC for the 2018-19 tax year unless the taxpayer elects to spread their outstanding loan balance across three tax years (2018-19 to 2020-21). See Statement of Practice 1 for further details on the election. The deadline for electing has now passed though HMRC may allow a late election in limited circumstances.
  • Time to Pay is available to those with no disposable assets and income below £50,000.
  • For most employment-related loans e.g. through EBTs the charge should have been settled under PAYE for 2018-19.
  • Loans must be reported on the 2018-19 Self Assessment return; the deadline for this and paying the tax (for the loan charge only) was extended to 30 September 2020 with no interest or penalties between 1 February 2020 and 30 September 2020. From 1 October 2020 late filing and payment penalties will be charged as well as late payment interest and taxpayers should now report and pay the loan charge as soon as possible.
  • Prior to January 2019 the loan charge could be postponed for ‘approved fixed-term loans’ outstanding as at 5 April 2019. An election had to be made and if the deadline was missed no postponed was allowed.

The charge did not apply if by 5 April 2019:

  • The loan was repaid in full.
  • The loan was from an amount on which Income Tax had been accounted for in full.
  • The loan had already been taxed in full under the disguised remuneration rules.

Other changes to the rules

From April 2017

Two new relevant steps were introduced and a charge arises when existing disguised remuneration loans are:

  • Transferred to a third party.
  • Released or written off.

Loan transfers

  • The rules on loan transfers confirm that schemes that result in a loan or other debt being owed by an employee to a third party (whatever the intervening steps) are within the scope of the disguised remuneration rules.
  • They target so-called ‘loan transfers’ and 'tripartite agreements', where arrangements result in an employee being indebted to a third party without the initial loan having been made by them.

Loan write-offs/releases

  • Confirmation that the write-off or reverse of such loans (including loan transfers) is a relevant step which gives rise to a part 7A charge and that this takes priority over any employment-related loan charge.

See Disguised remuneration (subscriber guide) for more details

Deductions for employee remuneration

  • Tax relief is denied for employer’s contributions to disguised remuneration schemes unless employment taxes and NICs are paid within 12 months of the end of the period in which the contribution is made.
    • This is subject to an overarching rule that a deduction will not be allowed if more than five years have passed since the end of the period in which the contribution was made.
  • Any payments made after this time, including under a settlement with HMRC, will not qualify for relief.

Extending the rules to the self-employed and partners

New rules target the use of ‘similar’ avoidance schemes by the self-employed and partners from 6 April 2017.

Most of these arrangements seek to avoid a charge to tax and NICs by depressing trading income through diverting money which is ultimately received back as a loan or other non-taxable amount. They may involve a trust.

The new rules apply to ‘relevant benefits’ arising where:

  • A person (T) is or has been carrying on a trade as a sole trader or partner.
  • There is an arrangement connected with that trade which is wholly or partly a means of providing ‘relevant benefits’ to T, someone connected to T or any other person where T will have the enjoyment.
  • The relevant benefit is connected directly or indirectly with a ‘qualifying third party payment’.
  • A tax advantage will be obtained by T (or a connected party) as a result.

Where these conditions are met the payment or benefit is taxable as part of T’s trading profits. 

See Disguised remuneration (subscriber guide) for examples of such schemes.

From 6 April 2018

  • A close companies gateway test was introduced to make it clear the DR rules apply to Close company participators.
  • This includes an avoidance purpose test to ensure it does not catch genuine commercial arrangements or those with no avoidance purpose.
  • Where an s.455 CTA 2010 Loans to participators charge arises at the same time as a part 7A charge under the close companies’ gateway, the Part 7A charge is relieved if the s.455 charge is fully paid by the due date.  
  • See Disguised remuneration (subscriber guide) for more details.

Accelerated Payment Notices and disguised remuneration

  • Since July 2014 an Accelerated payment notice (APN) can be issued if there is an enquiry, dispute or appeal relating to your tax affairs, and you have:
  • The APN asks you to pay the amount of tax that is in dispute and you have 90 days to pay.
  • There is no right of appeal against an APN, though you can make representations to HMRC if:
    • The conditions to issue the APN have not been met.
    • The amount is wrong.
  • Failure to pay may result in a penalty. The minimum penalty is 5% of the tax unpaid.
  • You could apply to postpone the loan charge where APN's have been paid if you applied by January 2019.

National Insurance regulations

The regulations provide for amounts chargeable to Income Tax under Chapter 2 of Part 7A of ITEPA 2003 to be treated as earnings for the purposes of NICs if they would not already be earnings for NICs purposes. Where these regulations apply ordinary NICs principles will apply to the collection of NICs.

Part 7A charges: Recovery of tax from employees

Special rules apply to allow recovery of tax from employees where:

  • An offshore employer is created solely for the purposes of an avoidance scheme or
  • The employer still exists but cannot pay or
  • The employer has been dissolved.

Dissolved employer and DR charges

In the event that the employer company has been dissolved:

  • It is the employee’s responsibility to return the employment income to HMRC under self-assessment and to pay the tax to HMRC.
  • The employee will not be liable for Class 1 NICs unless it is shown that they received payments knowing that the employer willfully failed to deduct tax.

Disguised Remuneration Settlement

HMRC created a Settlement opportunity in November 2017 for disguised remuneration schemes ahead of the loan charge being introduced on 6 April 2019. This set out the different positions for contractors, employees and also for employers where settlement is reached with them rather than their employees. 

  • Taxpayers must have registered their interest by 5 April 2019, provided all information to HMRC by the deadline provided to them by HMRC and concluded settlement with tax paid or formal payment arrangements in place by 30 September 2020 or the loan charge will apply.

Following the loan charge review, changes were announced on 20 December 2019 meaning HMRC will refund voluntary payments (‘voluntary restitution’) made to prevent the loan charge arising and included in a settlement agreement for any tax years where the charge no longer applies (see above). HMRC issued details of the repayment scheme on 22 July 2020. See Disguised remuneration loan charge (subscriber guide). for details on how to claim a repayment.

In August 2020 HMRC issued details of a new settlement opportunity for taxpayers with loans not subject to the loan charge. This was extended, on broadly the same terms, to taxpayers with loans subject to the loan charge in October 2020. See Disguised Remuneration 2020 settlement opportunity

If you need assistance in negotiating a settlement contact the Virtual Tax Partner support team. 


  • What are the disguised remuneration settlement terms?
  • Why should I make a settlement with HMRC?
  • What happens if I do not settle with HMRC?

See FAQs for Disguised Remuneration settlement

Inheritance Tax (IHT)

Depending on the specifics of the planning the trust may be within the relevant property regime despite being, in most cases, an offshore trust.

  • S.86 IHTA 1984 which relieves EBT's from IHT may not apply depending on how the trust deed is drafted.
  • If there are revocable sub-trusts HMRC's view is that an appointment to these can trigger an IHT charge.
  • HMRC have never provided details of who they regard as the settlor for these types of trusts, the employer or the employee though in the Rangers case HMRC argued it could be the employer. This will affect the IHT position.
  • Where the trustees are offshore the liability for the IHT can fall on the beneficiaries. 

Where a settlement has been reached with HMRC and IHT has not been properly dealt with, or not dealt with at all due to many EBTs being in territories outside the UK, there is a risk that it will be treated as offshore evasion which is subject to severe penalties.

Useful guides on this topic

Disguised remuneration loan charge (subscriber guide) 
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?

FAQs for Disguised Remuneration Settlements 
Can I just repay my loans? Which is cheaper: the loan charge or settling? How much will it cost to settle? And many other FAQs.

Disguised Remuneration final settlement opportunity 
An overview of the 2017 settlement opportunity for those involved in disguised remuneration schemes. What are the potential liabilities? What is the settlement process?

Disguised remuneration 2020 settlement opportunity
What is HMRC's position on disguised remuneration loans outside of the Loan Charge? Is there still a tax liability? Can this be settled?

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