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For many years the tax 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. In the 2016 Budget the Government confirmed that new schemes had emerged which attempted to sidestep the 2011 legislation and that it would introduce new provisions to counter their use, including a new charge on loans paid through DR schemes which had not been taxed and were still outstanding on 5 April 2019. At the time of its introduction, it was estimated that 50,000 individuals, and around 10,000 companies had used these schemes and were potentially covered by the Loan Charge.

There have been many concerns about the design of the Loan Charge and the financial difficulties facing taxpayers who used these schemes to either settle with HM Revenue & Customs (HMRC) or pay the Charge. 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. Legislation to amend the Loan Charge was included in the Finance Act 2020. Initially it was estimated that the package of reforms in Budget 2016 to frustrate the use of DR schemes would raise £3.2 billion over five years. In Spring 2022 the Government revised these estimates. The total amount to be raised from the Budget 2016 package is now estimated to be £3.4 billion over five years, while implementing the recommendations of the Independent Review is estimated to have cut the total yield by £620 million.

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

This briefing 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 Loan Charge in April 2019, and the series of changes the Government announced in December 2019 in response to the Independent Review. The first section of the briefing provides an overview of this long series of events.

A second Commons Library briefing – Tax avoidance and tax evasion – provides a general overview of the approach taken by Government and the tax authorities since 2010 to tackle tax avoidance and tax evasion.

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