The loan charge is a one-off income tax charge on disguised remuneration loans made on or after 9 December 2010 that were still outstanding at 5 April 2019. The outstanding balance was taxed as income in 2018/19. The loan charge has not been repealed. After a second independent review, however, a statutory Loan Charge Settlement Scheme has been in force since 5 August 2026. It recalculates the tax as if the income had been taxed when it was received, deducts £5,000, removes late payment interest and caps the total reduction at £70,000. HMRC has begun sending offers, and a first offer stays open for at least 90 days. About 32,000 people still have an outstanding liability. For many of them, the offer will be the most important tax decision they make this year.
What the loan charge is
Disguised remuneration schemes paid workers through a third party, often a trust or an umbrella company. The money was paid as "loans" that were never expected to be repaid, and promoters said they were not taxable. In 2017 the Supreme Court held that redirected earnings remain earnings. The loan charge, announced at Budget 2016 and legislated in Schedules 11 and 12 to the Finance (No. 2) Act 2017, then dealt with loans still outstanding by taxing the whole balance in one year.
HMRC's guidance says a loan is caught if all of these apply:
- Date made. On or after 9 December 2010. The start date was moved from 6 April 1999 following the 2019 Morse review. The Finance Act 2020 also took out of the charge amounts for 2015/16 and earlier years where the loan had been reasonably disclosed on a tax return and HMRC had not taken steps to recover the tax by 6 April 2019;
- Date received. Before 6 April 2019 for employees, or before 6 April 2017 for the self-employed;
- Source. A third party, such as a trust, rather than the employer directly;
- Still outstanding. Not repaid in full by 5 April 2019;
- Not settled. The tax had not been settled with HMRC by the 30 September 2020 deadline.
Some people elected to spread the charge equally over 2018/19, 2019/20 and 2020/21. For them, HMRC calculates the existing liability across all three years.
The 2025 review and the settlement scheme
In January 2025 the government asked Ray McCann, a former President of the Chartered Institute of Taxation, to review why people were still not settling. His report was published at Budget 2025 with the government's response. The government accepted all but one recommendation and went further in some areas, including the £5,000 write-off. The scheme is now law in sections 25 to 27 of the Finance Act 2026 and the Employment and Trading Income etc. (Loan Charge Settlement Scheme) Regulations 2026 (SI 2026/821).
The government estimates that most people who settle will see their outstanding liability fall by at least 50%, and that around 30% could settle without paying anything.
How the settlement amount is calculated
HMRC's implementation guidance sets out five steps for individuals:
- Gross income. Total the loans, any other income received through the arrangement and the promoter's fees, year by year. If fee records are missing, HMRC estimates fees by grossing up the loans by 15%;
- Tax in the original years. Work out the extra income tax and National Insurance that would have been due in each year the income was received. National Insurance is calculated at Class 4 rates, and no late payment interest is added;
- Promoter fee deduction. For each year, deduct 10% of the first £50,000 of gross income plus 5% of the next £100,000, up to £10,000 a year. No year can go below nil;
- £5,000 deduction. Add the years together and deduct £5,000, but not below nil;
- £70,000 cap. If the total discount compared with your simplified "loan charge gross liability" exceeds £70,000, the settlement is that liability minus £70,000.
In HMRC's first example, Asim received £20,000 a year in loans plus £5,000 of taxed pay from 2013/14 to 2015/16 and paid £3,000 a year in fees. His loan charge gross liability is £25,360, but his settlement amount is £2,810. A high earner in HMRC's second example, Barbara, would receive a discount of £80,990, but it is capped at £70,000.
The scheme also writes off unpaid inheritance tax arising from the scheme trusts, up to 3 months after the date of the offer. It removes late payment interest and most penalties. Promoters of avoidance schemes, and their directors, are excluded. Amounts already covered by a contract settlement made before 1 June 2021 are not reopened.
Offers, deadlines and acceptance
HMRC writes to people it believes are eligible, starting with those who have said they want to settle. The deadline depends on your position:
- Open enquiry or unnotified appeal. This applies to most people. You can accept until your liability becomes final or you notify your appeal to the First-tier Tribunal, whichever comes first. HMRC says this will always be more than 90 days;
- Liability already final, appeal already at the tribunal, or an existing contract settlement. You have 90 days from the date of the offer. After that, HMRC says you cannot settle under the scheme.
If you were employed and your UK employer still existed on 5 April 2019, HMRC will first try to collect from the employer. You receive an offer at the same time and can accept it straight away, or wait without losing the option.
To accept, you sign and return the acceptance form, even if the amount payable is £0. If you do not return it, the original loan charge liability remains. Acceptance creates a binding contract and closes HMRC's compliance checks into the arrangements covered. If HMRC withdraws an offer, or you reject it or make a counter-offer, a further offer need only stay open for 30 days under regulation 9 of SI 2026/821, unless HMRC allows longer, so raise any disagreement early. If you cannot pay in one go, you can pay by instalments over up to 5 years, or longer depending on your circumstances. Interest applies to instalments.
What to check before you sign
- The income figures. Check the loans, fees and taxed amounts year by year against scheme statements and bank records. If you disagree, your caseworker will discuss them and send a new offer if any figures change;
- Inheritance tax exposure. Only charges that have already arisen, or arise within 3 months of the offer date, are written off. Charges arising later, for example when a loan is written off or the trust ends, must be paid when they arise, so take advice on the trust;
- Other disguised remuneration liabilities. Liabilities outside the loan charge are included in the offer if HMRC opened an enquiry or issued an assessment on or before 26 November 2025;
- The cost of refusing. If you do not settle, you owe the full liability, with late payment interest running until it is paid.
Sources: HMRC's guidance on the loan charge, the settlement scheme and how HMRC will implement it; the Budget 2025 policy paper; section 25 of the Finance Act 2026; SI 2026/821; section 17 of the Finance Act 2020; and Schedule 11 to the Finance (No. 2) Act 2017. For the trust structures behind many schemes, see our guide to employee benefit trusts.
If you have received a settlement offer, or expect one, Acumon's tax dispute resolution team can check HMRC's figures and the inheritance tax position, and deal with your caseworker before the deadline.