Loan charge & disguised remuneration? Start here...

At a glance

What is the loan charge?

The Disguised Remuneration Loan Charge (Loan Charge) applies to loans that fall within the Disguised Remuneration rules that:

• Were made on or after 9 December 2010. 
• Had not been repaid in full or fully taxed, including by way of Settlement with HMRC, by 5 April 2019.

If subject to the loan charge, the total loan balance was taxable in full in the tax year 2018-2019. The amount was to be included on the tax return for the year, and by 30 September 2020:

• The return was to be filed.
• All tax was to be paid unless a Time to Pay arrangement was agreed with HMRC.

2018-2019 returns filed with all tax paid are subject to no further action.

• Up until 1 January 2019, it was possible to postpone the loan charge in certain restricted circumstances. It is now too late to postpone. See How to apply to postpone your loan charge.
• An election could be made to spread the Loan Charge equally across three years. The deadline was 30 September 2020 but HMRC will consider late elections in some circumstances. See Statement of Practice 1 for details.
• In September 2019, the Chancellor commissioned an independent review of the loan charge by Sir Amyas Morse, which was reported upon on 20 December 2019. This announced several changes included in Finance Act 2020, which excluded certain loans from the charge:
  • Loans taken out before 6 April 2016, which were reasonably disclosed to HMRC and HMRC have not taken any action, such as opening an enquiry or raising an assessment or determination, were excluded. 
  • See Disguised remuneration loan charge for full details. 

What is a Disguised Remuneration (DR) loan?

• Generally, DR schemes work by paying individuals a small taxable minimum wage and a non-taxable element, such as a loan, in return for services provided. 
• If you worked for someone as a paid director, employee or on a self-employed basis and you agreed to receive a loan or similar non-taxable element as part of your salary or wages, which you understood would not be repaid, the loan is described as a disguised remuneration loan.
• The aim of this is to avoid tax and NICs.  Where there is an employer, they also avoid NICs.
• In some industries, low-paid employees were paid with loans via umbrella and similar companies; some of these employees appear to be genuine victims and unintentional tax avoiders.

What settlement options are there?

• 30 September 2020 was the final settlement date under the 2017 settlement opportunity for outstanding disguised remuneration loans to which the loan charge applies. This settlement opportunity is now closed.
• In August 2020, HMRC issued details of a new settlement opportunity for taxpayers with loans not subject to the loan charge. In October 2020, details were released of how this applies to loans subject to the loan charge. This settlement opportunity remains open but does not avoid the loan charge. See Disguised Remuneration 2020 settlement opportunity

What's new?

The loan charge review has concluded and the outcome of the review was published at Autumn Budget 2025. 

The Loan Charge review’s report was published alongside the /Government’s response.

The Government is accepting all but one of the review’s recommendations.

• The review recommends that the Government introduce a settlement opportunity to encourage those who have not settled their avoidance with HMRC to do so.
  • The settlement opportunity will allow people to settle their loan charge liabilities with HMRC on concessionary terms.
  • Under the terms of the settlement opportunity, everyone who comes forward will see a £5,000 reduction in their outstanding liabilities.
  • They will also be able to offset a proportion of the fees assumed to have been paid to the promoters of the schemes against their liabilities.
  • HMRC will also forgo all late payment interest, will not collect any IHT that has arisen from the use of trust structures, and will only charge penalties in egregious cases.
  • The maximum deduction will be £70,000.
• This measure will be effective from Royal Assent to Finance Act 2026.

HMRC are currently reviewing taxpayers' arrangements and are sending out letters in January 2026.  These letters will detail the taxpayers' named contact and explain if and how their position is affected by the review. 

What is a Disguised Remuneration (DR) loan?

• Broadly, if you worked for someone as a paid director, employee or on a self-employed basis and you agreed with them to receive a loan instead of any salary or wages, and the understanding was that you would never have to repay that loan, such a loan is described as a disguised remuneration loan.
• The aim of paying someone via a disguised remuneration loan is that you avoid tax and NICs and the employer avoids NICs.
• If you are self-employed, it means that you might avoid Income Tax and Class 4 NICs.
• Key features and selling points of disguised remuneration loans were that they would be written off 'tax-free' on death, meaning that no tax would ever be paid on your earnings. Alternatively, if you moved abroad, the loan could disappear with you and the offshore trust making the loan might also disappear.
• Tax schemes or 'tax strategies', including disguised remuneration loan schemes, have been mass-marketed over the last 20 years. The government has now introduced legislation designed to tackle scheme promoters and has also introduced a General Anti-Abuse Rule (GAAR).
• Many of the providers, promoters and originators of these schemes have now, not unsurprisingly, disappeared or folded. Some providers have sold the loans to third parties. During 2021 and 2022, some loans have been called in by these third-party lenders. See Don’t repay your Contractor Loans without taking advice
• Many firms of accountants and advisers declined to sell these schemes. There is a fundamental difference of opinion between professional advisers as to whether it was ever ethical or morally right to advise people to avoid tax by converting earnings into non-repayable loans. 

How much is the loan charge?

• The loan charge is a charge on the amount of all outstanding loan balances on 5 April 2019. It falls into the 2018-19 tax year unless an election was made by 31 December 2020 to spread the loans over three tax years. Details of the election and instances where HMRC may accept late elections can be found in Statement of Practice 1.
• The Rate of charge will depend on the amount of loans taken and your other income in the 2018-19 tax year. For example, if you are an employee and have other income of £50,000 and loans of £100,000, the Income Tax on your loan is likely to be £40,000 and employee NIC £2,000. The loan charge will also cause you to lose your personal allowance. If you are self-employed, the tax will be the same and the class 4 NIC will also be £2,000.
• It may have been more beneficial for taxpayers to settle with HMRC by 30 September 2020 than pay the loan charge. It is now too late to avoid the loan charge by settling with HMRC. A settlement can still be reached but if the tax due under the 2020 settlement opportunity is less than the loan charge already paid, no refund will be paid by HMRC.
• On 20 December 2019, it was announced that Time to Pay arrangements could be agreed for those with no disposable assets and income below £50,000.

Why did HMRC not act sooner?

• HMRC and parliament seem to have been extremely slow in noticing the rise of a massive tax avoidance industry in the UK.
• We observe that many people do not understand trusts and most loan schemes used offshore trusts. 
• HMRC has been litigating against the many different forms of disguised remuneration schemes since the 1990s: their view was that they did not work; however, litigation takes time.
• The most high-profile DR court case in recent years involved the former Rangers football club. Players received loans instead of pay. The Supreme Court confirmed that the loans were disguised remuneration and subject to PAYE and NICs.
• HMRC consequently offered loan settlement opportunities, with the latest and current opportunity being launched in August 2020. Many people who used loan schemes realised that receiving pay via a loan is a form of tax avoidance not intended by the government and have consequently settled their loans with HMRC.

In more technical detail

What are the Disguised Remuneration rules and when do they apply?

The employment income through third parties rules, also referred to as the 'Disguised remuneration' rules, are wide-ranging anti-avoidance rules in Part 7A ITEPA 2003 which:

• Provide for an accelerated employment tax and National Insurance (NI) charge on a range of remuneration 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, contractor loan schemes and Employer Financed Retirement Benefit Schemes (EFRBS).

What is Disguised Remuneration?

Disguised remuneration is defined by Part 7A as where:

Employees:

• A person 'A' is a living employee, either former, existing or prospective of another person, 'B'.
• There is an 'arrangement' to which A (or any person linked to A) is a party to, or which otherwise covers or relates to A.
• It is reasonable to suppose that ''in essence, the arrangement is wholly or partly a means of providing the provision of rewards, recognition or loans in connection with A's employment or former prospective employment with B.
• 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.

Self-employed and partners (from April 2017):

• 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 that 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.

See Disguised remuneration loan charge.

What is an Accelerated Payment Notice?

• An Accelerated Payment Notice (APN) might be issued if there is an enquiry, dispute or appeal relating to your tax affairs, and you have:
  • Received a Follower notice.
  • Used a Disclosure of Tax Avoidance Schemes arrangement (DOTAS).
  • Received a General Anti-Abuse Rule (GAAR) counteraction notice.
• The APN asks you to pay the amount of tax that is in dispute and HMRC then hold the money until the matter is resolved. It is therefore a payment on account. APNs are separate from the loan charge.

How can I settle disguised remuneration, EBT or contractor loans with HMRC?

There is currently one settlement option available; the Disguised remuneration 2020 settlement opportunity was announced in August 2020 for loans not subject to the loan charge and amended in October 2020 to deal with loans that are subject to the charge.

• There is currently no deadline for this though HMRC state that they could amend or withdraw it at any time.
• The 2017 Settlement opportunity is now closed as settlements had to be completed by 30 September 2020.

 What are the disguised remuneration settlement terms?

• Income tax and Class 1 primary National Insurance (employees) or Class 2 and 4 NICs (self-employed and partners) on the amount of the loans, at your marginal tax rate for the year(s) in which the loans were taken out.
• Interest on the above.
• For loans subject to the loan charge in certain limited circumstances HMRC will not collect the additional tax (residual tax) due under the 2020 settlement opportunity.
• Depending on the size of the loan and trust, Inheritance Tax (IHT) may also be due.
• See FAQs for Disguised remuneration settlements

At Autumn Budget 2024, it was announced that there will be a further independent review of the loan charge to help bring the matter to a close for those affected, whilst ensuring fairness for all taxpayers.

In January 2025, Exchequer Secretary to the Treasury, James Murray MP, announced that an Independent review of the disguised remuneration loan charge would be led by Ray McCann, former President of the Chartered Institute of Taxation (CIOT). 

The government published its response on 26 November 2025:

• The government will introduce legislation in Finance Bill 2025-26 to introduce a new settlement opportunity to support those liable to the loan charge to resolve their affairs with HMRC.
• Affected taxpayers should contact their dedicated caseworker for more information.  
• Where people decide to settle, most individuals could see reductions of at least 50% in their outstanding loan charge liabilities and an estimated 30% of individuals may be able to settle without paying anything.
• For those who decide to settle, the key features of the settlement opportunity are that:
  • Instead of being charged at the tax rates that apply to the loan charge and all other income in 2019, the new offer will be worked out based on the tax rates they would have paid in the years in which loans were made. 
  • The new amount will be reduced to account for historic promoter fees, up to a maximum discount of £10,000 per year that a taxpayer used a loan scheme.
  • The new amount will be reduced by £5,000, reducing the amount that many people could pay to zero. 
  • No late payment interest will be charged.
  • Any Inheritance Tax (IHT) already due because of the use of loan schemes covered by the settlement will be written off.
  • HMRC will agree time-to-pay arrangements tailored to a person's ability to pay. Anyone can decide to pay their liability over five years, without having to discuss affordability with HMRC. 
  • The maximum reduction for any one person will be no greater than £70,000 on what the person already owed because of the loan charge. 
  • Promoters of tax avoidance schemes will not be able to access the new settlement opportunity. 
• This measure will be effective from Royal Assent to Finance Act 2026 and will have retrospective effect from 5 April 2019.

Where to obtain human support

If you need assistance in dealing with HMRC enquiries, calculating your loan charge or negotiating a settlement with HMRC, contact the Virtual Tax Partner support team. 

Useful guides on this topic

Disguised remuneration loan charge 
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 (Closed)
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?

EBT schemes: where are we now?
What is the current position with EBT schemes? How does the loan charge apply? What are the current settlement options?