The government has published a response to the 2025 Independent Loan Charge Review. With retrospective effect from 5 April 2019, a settlement opportunity will be introduced to encourage those who have not settled their disguised remuneration loan charge with HMRC to date.
The review made nine recommendations, and the government accepted all but one. Next steps include a settlement opportunity to encourage those who have not already settled their tax with HMRC, and this opportunity could see individuals get reductions of at least 50% in their outstanding loan charge.
Disguised remuneration schemes work by paying individuals a small taxable minimum wage and a non-taxable element, such as a loan, in return for services provided.
The Disguised remuneration loan charge (loan charge) was announced in the 2016 Budget and intended to tackle the historical use of contrived tax avoidance schemes that sought to avoid Income Tax and NICs by disguising income as allegedly non-taxable loans. It applies to such loans that were made on or after 9 December 2010 and 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 2018-19. The amount was to be included on the tax return for the year.
The loan charge faced criticism for bringing amounts into charge even where HMRC had not protected its position by opening an enquiry, and for the way it aggregated outstanding loans within a single tax year.
This review sought to strike the right balance between ensuring fairness for all taxpayers and maximising the opportunity for people to settle their affairs with HMRC.
Recommendations
The review made nine recommendations. The government accepted all but one of these recommendations.
- Introduce a new settlement opportunity for individuals.
- Suspend part of the liability.
- Suspending a portion of the liability would leave taxpayers lacking certainty about their final liability for many years after settling with HMRC.
- Rather than suspending a proportion of the liability, the government will write off all or part of it to the point of settlement.
- This will provide certainty and finality for taxpayers.
- Calculating the suspended liability:
- Calculate the tax owed in the years in which the income was earned.
- Suspend up to 10% of gross scheme income per tax year to account for fees paid.
- Suspend late payment interest.
- Do not seek to apply penalties.
- Do not collect Inheritance Tax (IHT) on disguised remuneration schemes using a trust.
- More straightforward payment plans:
- Allow payment plans of up to five years by default and up to 10 years with HMRC approval:
- HMRC will not restrict payment plans to 10 years.
- Where taxpayers require longer to pay their liabilities, HMRC will consider longer payment plans.
- Ten years should be the maximum length of a payment plan. If an individual cannot afford to pay the liability over 10 years, then the remainder could be suspended. The government did not accept this recommendation.
- Writing off unpaid liabilities after 10 years could encourage longer payment plans and prolonged engagement with HMRC.
- Very few people will require payment plans of longer than 10 years under the settlement opportunity.
- Allow payment plans of up to five years by default and up to 10 years with HMRC approval:
- Where there is no reasonable prospect of recovering much of the liability, for example, the individual is only in receipt of State Pension or Universal Credit, take an exceptional approach of writing off all or most of their liabilities.
- Where liabilities are settled with employers rather than employees, do not disallow a Corporation Tax deduction and do not apply penalties or IHT, and ensure sufficient time to pay is available.
- Employers will be able to access the same settlement terms as employees.
- Replace the current Disclosure Of Tax Avoidance Schemes (DOTAS) notification system with a clear certificate that promoters must provide to taxpayers, making it clear that the scheme is tax avoidance.
- Prohibit promoters from providing additional tax services for the same individual.
- Improve HMRC correspondence with taxpayers.
Next steps
As announced in the 2025 Autumn Budget, to be legislated in the forthcoming Finance Bill, with retrospective effect from 5 April 2019:
- A settlement opportunity will be introduced to encourage those who have not settled their avoidance with HMRC to date.
- Under the settlement opportunity, individuals could see reductions of at least 50% in their outstanding loan charge liabilities, and an estimated 30% of individuals could have these liabilities written off entirely.
- To consider low earners with relatively low liabilities that may be a large share of their income, the first £5,000 of liabilities will be written off.
HMRC will write to taxpayers in scope to make them aware of the new settlement opportunity from the beginning of 2026.
- They will also publish guidance that provides further detail on the operation of the new settlement opportunity.
- After the first letter, HMRC will then begin contacting taxpayers again from Spring 2026 to explain the settlement opportunity in more detail based on their specific circumstances.
- All taxpayers in scope will be contacted by the end of the 2027-28 tax year.
- Taxpayers who contact HMRC proactively will be prioritised for settlement.
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?
External links
Government response: Loan Charge Review 2025
Final report: Independent Loan Charge Review 2025
Policy paper: Loan charge independent review