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In the 2016 Budget the Government announced the Loan Charge to tackle the mass marketing of tax avoidance ‘loan schemes’.

For many years the revenue authorities have tried to counter the development of various ‘disguised remuneration’ (DR) schemes which seek to prevent salaries and bonuses being classified as taxable income by having payments made in assets such as gold bullion, Persian rugs and platinum sponges.

In 2011 the Government introduced provisions to counter an expanding market for loan schemes, where the recipient, either an employee or contractor providing their services for a company, would receive a loan which they would not be expected to ever pay back.[1] The market was driven in part the rise in the number of individuals providing their services through an ‘umbrella company’ (a structure which provides employment to a number of individuals, signing contracts to provide individuals’ labour to third parties). 

In the 2016 Budget the Government confirmed that new schemes had emerged which attempted to sidestep the 2011 legislation often involving “individuals being paid in loans through structures such as offshore Employee Benefit Trusts”, and that it would introduce legislation to counter their use, including “a new charge on loans paid through DR schemes which have not been taxed and are still outstanding on 5 April 2019.”[2] Though highly complex, the basic design of these tax avoidance schemes is this:[3]

Statutory provision for the Loan Charge was made by the Finance (No.2) Act 2017,[4] with supplementary provisions in the Finance Act 2018.[5]  When this legislation was introduced, it was estimated that these measures would raise £3.2 billion over five years.[6]

HMRC has estimated that 50,000 individuals, and around 10,000 companies used these schemes and are potentially covered by the Loan Charge.

The Loan Charge applies to the outstanding balance of DR loans on 5 April 2019 that were made over the previous 20 years – that is, after 5 April 1999.[7] Individuals liable to pay the Charge were required to include it on their 2018/19 tax return, so that payment was due by 31 January 2020. As an alternative course of action taxpayers liable to pay the Charge have had the option of settling their tax affairs with HMRC before it came into effect, or repaying the loan to avoid any tax liability.[8]

It has been estimated that 50,000 individuals had made use of these schemes – around three-quarters of whom worked in business services (for example, IT consultants, financial advisers, management consultants) and in construction.[9] Around 10,000 companies had used them – over three quarters of whom were ‘close companies’ (ie, ones usually controlled by a small number of people).[10] HMRC have estimated about 250 different loan schemes are covered by the Loan Charge.[11]

The Loan Charge “stacks” loans that the taxpayer has received, so that they are liable to pay a single charge based on the value of all outstanding loans. HMRC have estimated that of individuals who used a scheme from 2011/12 onwards, 70% did so for two or fewer years and only 16% used a scheme for four or more years.

However, the length of the twenty-year look-back period created potential for loans received many years ago to be included in someone’s assessment, and many users’ financial circumstances are likely to have changed since their participation. As has been noted, the intention behind this element of the design was to encourage taxpayers to settle rather than pay the Loan Charge.[12]

Since the legislation establishing the Loan Charge was introduced, there have been many concerns as to its design and the financial difficulties facing taxpayers who used these schemes to either settle with HMRC or pay the Charge.

The Loan Charge has proved highly controversial.[13] Over the 2017‑19 Session 155 Members signed an EDM, tabled by Stephen Lloyd MP in May 2018, criticising the 2019 Loan Charge, arguing that “retrospectively taxing something that was technically allowed at the time, is unfair” and proposing that “the Charge to apply only to disguised remuneration loans entered into after the Finance Act 2017 received Royal Assent.”[14]

However, this legislation attracted cross-party support when it was scrutinised in the House, and Ministers repeatedly opposed calls to scrap the Change or substantively amend the way it applies. Treasury Minister Mel Stride set out the Government’s position at length in answer to a series of linked PQs in June 2018:

Stephen Lloyd : To ask Mr Chancellor of the Exchequer, what recent steps HMRC has taken in respect of (a) disguised remuneration schemes and (b) the promoters of such schemes.

Mel Stride : The charge on disguised remuneration (DR) loans is targeted at artificial tax avoidance schemes where earnings were paid via a third party in the form of ‘loans’ which in reality were never repaid. DR scheme users took home almost all of their pay tax-free. However, these schemes never worked and the amounts paid were always taxable under the law at the time.

The Government has taken this action to ensure that everybody pays the taxes they owe and contributes towards the public-funded services from which they benefit. HMRC has provided a number of opportunities for DR scheme users to settle their tax affairs, and is actively encouraging scheme users to come forward and settle their tax position ahead of the loan charge arising. HMRC will help those who are in genuine financial difficulty by allowing them to pay their tax bill over time. The charge on DR loans is specifically targeted at these contrived tax avoidance schemes and is not expected to have significant effects on the economy or the NHS.

The Government estimates that up to 50,000 individuals will be affected by the charge on DR loans. Further information can be found at the ‘Disguised remuneration: further update’ policy paper. The loan charge applies to all users of DR tax avoidance schemes. It does not single out a specific group or industry. No estimate of the number of individuals affected at sector level is available. Fewer than 30 individuals declared the use of a loan scheme on their Self Assessment tax returns for the 2016/17 tax year. No estimate has been made of the number of schemes currently operating in the UK. HMRC continues to challenge avoidance schemes that are declared, and carries out extensive investigation work to track down those that are not.

Enquiries into DR tax avoidance cases can be time consuming and take several years because of the very complex nature of the arrangements. HMRC also relies on the cooperation of scheme users to provide information and agree to pay the tax they owe. A breakdown of the number of DR cases open by the number of years they have been open is not available, as HMRC’s operational data is not held in a way where this information is readily accessible.

Pay As You Earn (PAYE) liabilities fall on the employer in the first instance. The loan charge will not change this principle and HMRC will pursue employers who have used DR schemes for the tax that is due. HMRC will only go to the employee to settle their income tax liability in cases where it cannot reasonably be collected from the employer, for example where the employer is no longer in existence.

HMRC pursues those who promote or enable tax avoidance schemes to ensure that nobody profits from selling avoidance. HMRC is able to charge tough penalties of up to one million pounds where promoters do not provide clear and accurate information to their clients, and penalties of 100% of the fees earned by anyone who designs, sells, or otherwise enables the use of tax avoidance arrangements.

HMRC is proactively reporting DR scheme promoters to the Advertising Standards Authority and professional bodies where they make misleading claims about their products and services or provide misleading advice. HMRC will also consider criminal investigation where appropriate. Promoters of tax avoidance schemes have been prosecuted, leading to convictions and jail terms.[15]

At the Report stage of the Finance Bill in January 2019, the Government agreed to a new clause, tabled by Sir Edward Davey, to review new time limits for HMRC to investigate offshore matters introduced by the Bill, as well as the time limits for the Loan Charge. This review, published in March 2019, did not propose any change to policy, and restated the Government’s view “that the charge on DR loans is the right approach…

… to ensure fairness for the vast majority of UK taxpayers who pay the right amount of tax at the right time and draw a line under this form of tax avoidance. However, the Government recognises the difficulties that some people are facing and is working to ensure that all cases are treated sympathetically, with payment terms that reflect the circumstances of each individual case, and appropriate support wherever needed.[16]

The review also restated the Government’s position that the Loan Charge was not retrospective legislation:

The charge on DR loans applies a tax charge to outstanding loan balances at 5 April 2019. It does not change the tax position of any previous year, the tax treatment of any historic transaction, or the outcome of any open compliance checks. Those who used the schemes can escape the charge by repaying the balances of any outstanding loans. Alternatively, they can seek to agree a settlement of the tax due on their income disguised as a loan, which was due under the legislation that existed at the time.[17]

In October 2019 Jim Harra, HMRC Chief Executive, told the Public Accounts Committee that in total about 28,000 people had registered an interest in a settlement, of which 19,000 had provided HMRC with the requisite information by 5 April. Up to the end of August 2019 HMRC had settled about 8,000 cases for about £2 billion.[18]

In December 2019 the Government announced a series of reforms to the Loan Charge, following the recommendations of an independent review, chaired by Sir Amyas Morse.

On 4 September 2019 the Prime Minister Boris Johnson announced that he had “undertaken to have a thoroughgoing review” of the Loan Charge,[19] and later that month the Government confirmed that Sir Amyas Morse, former Comptroller and Auditor General and Chief Executive of the NAO, would lead an independent review to “consider whether the policy is an appropriate way of dealing with disguised remuneration loan schemes used by individuals who entered directly into these schemes to avoid paying tax.” It was anticipated the review would be completed by mid-November 2019 “giving taxpayers certainty ahead of the January Self Assessment deadline.”[20] Further details were published at this time.[21]

With the House’s approval of the necessary legislation for the General Election for 12 December, Treasury Minister Jesse Norman wrote to Sir Amyas to confirm that “ministers have agreed that it would be most appropriate for your report to be submitted to the new Government on its formation.”[22] Sir Amyas’ report was published on 20 December, making a long series of recommendations with major implications for those affected.[23] The Government accepted all but one of these; a summary was given in a press notice alongside the Government’s detailed response:

Following the Review the Government will;

  • make changes so that the Loan Charge will now only apply to loans taken out on or after 9 December 2010. The Review found that legislation announced in 2010 removed any doubt that tax was due
  • not apply the Loan Charge to users of loan schemes between 9 December 2010 and 5 April 2016 who fully disclosed their schemes on their tax return and where HMRC failed to take action
  • allow users to defer filing their returns and paying their Loan Charge liability until September 2020
  • allow taxpayers to split the loan balance over three tax years to make bills more affordable
  • invest in a new HMRC team to collect tax from those who used the avoidance schemes pre-2010.[24]

Although the Loan Charge was intended to shut down loan schemes, the Review had found “scheme usage continues to be extensive in the 2019/20 tax year to date … a key driver of ongoing scheme usage is a limited number of promoters and professional advisers who are selling schemes in spite of knowing that they will not deliver the tax benefits being promised.”[25] In its response the Government announced several measures to counter the marketing of new schemes, and stated that would “launch a call for evidence on what steps it can take to raise standards in this market to give taxpayers more assurance that the advice they are receiving is reliable.”[26]

In the 2020 Budget the Government confirmed that legislation to amend the Loan Charge would be included in the Finance Bill 2019-21.

On 20 January 2020 HMRC published draft legislation to provide for these changes to the Loan Charge. In a written statement the Financial Secretary Jesse Norman confirmed HMRC would hold an informal four-week consultation on these provisions, be included in the Finance Bill to be introduced after the 2020 Budget.[27]  Further draft legislation was published on 27 February.[28]

In the 2020 Budget on 11 March the Government confirmed its plans and announced that HMRC would to be provided with additional operational funding to take account of these measures.[29] In addition, as previously announced, HMRC published a call for evidence on raising standards in the tax advice market,[30] well as a second call for evidence on possible further action to stamp out disguised remuneration schemes.[31]

Provision to make these changes is included in the Finance Act 2020 (specifically sections 15-21 of the Act). It has been estimated that implementing these changes will cost the Exchequer £745m over the next five years.[32]  HMRC’s assessment of the impact on individuals and businesses was set out in a tax information note published alongside the 2020 Budget; an extract is reproduced below:

Initial analysis suggests that more than 30,000 individuals will benefit from this measure:

  • an estimated 11,000 individuals will be removed from the Loan Charge due to the date the Loan Charge applies from being changed to 2010 and the provisions for those who have made reasonable disclosures
  • an estimated 21,000 individuals will see the amount of tax they owe under the Loan Charge reduce as a result of the proposals to allow customers to split their loan balance over three years.

… Around 1,000 individuals are expected either to receive a refund of voluntary restitution paid, or to face reduced instalment arrangements if it was included as part of a time to pay or instalment plan …

Initial analysis suggests that moving the date the Loan Charge applies from 1999 to 2010, together with the provisions that disapply the Loan Charge where a reasonable disclosure of a loan relating to 2015 to 2016 or an earlier year was made and HMRC had not taken action to protect the year, would remove an estimated 1,000 employers from the Loan Charge. Around 1,000 employers are expected to receive a refund of voluntary restitution paid.[33]

Following the passage of this legislation, the issue has gathered much less attention although it is worth highlighting that in December 2020 HMRC published a report to Parliament on the actions the department had taken to implement the recommendations of the Morse Review, as proposed by Sir Amyas Morse in his report.[34]

HMRC has published updated guidance for taxpayers, setting out the position for those who have settled, and those liable to pay the Charge.[35]


This paper discusses the Government’s introduction of this legislation, its consideration by the House, and the debate as to whether HMRC’s approach has been fair or not.

This includes details on the major legal challenge to the operation of DR loan schemes (the ‘Rangers’ case in July 2017), HMRC’s actions to tackle the marketing of schemes by scheme promoters, concerns as to the retrospective nature of the Loan Charge, and the operation of HMRC’s settlement opportunity for scheme users who wish to avoid paying the Charge.

It concludes by looking at developments following the introduction of the Charge in April 2019, and the series of changes the Government announced in December 2019 in response to the Independent Review.

A second Library paper provides a general overview of the approach taken by Government and the revenue authorities since 2010 to tackle tax avoidance and tax evasion.[36]


[1]   s26 & Schedule 2 of FA2011. Debated and agreed at the Committee stage of the Bill (Public Bill Committee, Eighth sitting, 19 May 2011 cc 267-315).

[2]   Budget 2016, HC901, March 2016 p60

[3]   HM Treasury (HMT), Section 95 of the Finance Act 2019: report on time limits and the charge on disguised remuneration loans, March 2019 p16

[4]   ss34-5 & Schedules 11-12 of F(No.2)A 2017. Debated and agreed at the Committee stage of the Bill: Public Bill Committee, Fourth Sitting, 19 October 2017 cc99-102

[5]   ss11-12 & Schedules 1-2 of FA2018. Debated and agreed at the Committee stage of the Bill: Public Bill Committee, First Sitting, 9 January 2018 cc27-34

[6]   Budget 2016, HC 901, March 2016 p85 (Table 2.1 – item 39) & Autumn Statement, Cm 9362, November 2016 p23 (Table 2.1 – item 24); PQ 274514, 11 July 2019.

[7]   HMRC, Tackling disguised remuneration – update, 5 December 2016

[8]   HMRC, Disguised remuneration: settling your tax affairs, July 2019.

[9]   HM Treasury, Section 95 of the Finance Act 2019: report on time limits and the charge on disguised remuneration loans, March 2019 para 3.13-4, para 3.21

[10]   HMT, Independent Loan Charge Review: report on the policy and its implementation, December 2019 p42

[11]   HMRC, Tax avoidance loan schemes and the loan charge, 15 January 2019

[12]   HMT, Independent Loan Charge Review: report on the policy and its implementation, December 2019 para 7.9, para 3.10

[13]   “HMRC tax crackdown victimises easy targets”, Financial Times, 25 September 2018 & “Living in the shadow of a tax scandal”, Financial Times, 26 January 2018

[14]   EDM 1239 of 2017/19, 8 May 2018

[15]   PQs152724-157732, 20 June 2018. The Minister reiterated the Government’s position in a debate on the Loan Charge on 11 April 2019 (HC Deb cc565-8).

[16]   HMT, Section 95 of the Finance Act 2019: report on time limits and the charge on disguised remuneration loans, March 2019 p8

[17]   op.cit. para 3.82. see also, HM Treasury press notice, Government details scale of loan scheme tax avoidance, 26 March 2019

[18]   PAC, Oral evidence: HMRC Standard Report 2018-19, HC 28, 21 October 2019 Q2, Q5. See also, HMRC, Independent Loan Charge review: HMRC report on implementation, 3 December 2020

[19]   HC Deb 4 September 2019 c175

[20]   HMT press notice, Sir Amyas Morse to lead independent review of the Loan Charge, 11 September 2019. See also, “Loan charge review to be led by Amyas Morse”, Financial Times, 11 September 2019.

[21]   HMT, Disguised remuneration: Independent loan charge review, updated 5 November 2019

[22]   HM Treasury, Letter from the FST to Sir Amyas Morse, 5 November 2019

[23]   HMT, Independent Loan Charge Review: report on the policy and its implementation, December 2019

[24]   HMT press notice, Government to take new actions on loan schemes following Morse review, 20 December 2019. See also, “Thousands of UK taxpayers face lower bills after ‘loan charge’ ruling”, Financial Times, 20 December 2019.

[25]   HMT, Independent Loan Charge Review: report on the policy and its implementation, December 2019 p56

[26]   HMT, Independent Loan Charge Review: Government response, December 2019 paras 2.47‑49

[27]   Written Statement HCWS45, 20 January 2020

[28]   Written Statement HCWS136, 27 February 2020

[29]   Budget 2020, HC 121, March 2020 paras 2.255-8

[30]   Details of this consultation exercise are here: Call for evidence: raising standards in the tax advice market, updated 12 November 2020

[31]   Details of this consultation exercise are here: Call for evidence: tackling disguised remuneration tax avoidance, updated 23 March 2021

[32]   Budget 2020, HC 121, March 2020 p68 (Table 2.1 – item 63); HM Treasury, Budget 2020: policy costings, March 2020 p50

[33]   HMRC, Implementation of recommendations from the independent review of the Loan Charge, 11 March 2020

[34]   Written Statement HCWS621, 3 December 2020; HMRC, Independent Loan Charge review: HMRC report on implementation, 3 December 2020.

[35]   HMRC, Disguised remuneration: guidance following the outcome of the independent loan charge review, updated 4 March 2021. The first version of this guidance accompanied the Government’s response to the Morse review. See also, HMRC, Disguised remuneration: settling your tax affairs, 9 December 2020 & Disguised remuneration settlement terms 2020, 19 November 2020

[36]   Tax avoidance and tax evasion, Commons Briefing paper CBP7948, 13 April 2021

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