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Worked through an umbrella company in the past? You should check whether you need to do anything about the loan charge

Published on 10 September 2020

The loan charge is a tax charge that needs to be reported and paid by the 30 September 2020. If you worked through an umbrella company in the past, you may have been paid through arrangements that are caught by the loan charge – although you may not have realised this was the case. In this article we tell you how to check whether you need to do anything about the loan charge and if so – what.

Image of a calendar with 30 September circled
(c) Shutterstock / Zerbor

In the past, it was not unheard of for agency workers or contractors who worked through umbrella companies, to be partly paid in non-taxable 'loans' (on top of a 'normal' minimum wage salary). This may have been done with the person's full knowledge – because they personally wanted to try and avoid paying some tax. Or this may have been implemented by the umbrella company – without the person's full knowledge or understanding – because paying someone in non-taxable 'loans' could also save the umbrella company money.

As a result of this practice, the Exchequer received less tax than if the whole amount had been paid by way of normal salary and to try and recoup some of those funds, the government introduced the 'loan charge'. In the vast majority of cases involving agency workers or contractors, the loan charge will fall on the individual, even where the individual was not aware that they were in a loan scheme because an umbrella company arranged how the workers were paid.

For more background and explanation about the loan charge, see some of our previous articles, linked to in the further reading section.

The loan charge

The 'loan charge' treats an amount equal to the value of all outstanding ‘disguised remuneration’ loans made since on or after 9 December 2010, and outstanding on 5 April 2019, as employment income.

There is an exception to this, however, for loans made on or after 9 December 2010 and before 6 April 2016, if the avoidance scheme use was fully disclosed to HMRC and, as at 5 April 2019, HMRC had not taken action to protect their assessing position – for example, by opening an enquiry or issuing a tax assessment. If you did not know you were in a loan scheme, you will not have disclosed it on your tax return (or even filed a tax return at all), so this is unlikely to apply to you.

The default position is that the amount of outstanding loans will be added together and taxed as employment income arising on 5 April 2019. As the amount is assessed in one lump sum, it, and any other income you received in the tax year 2018/19, will benefit from only one year’s worth of allowances and tax bands, despite the fact the loans may have arisen over several years. You can, however, make an irrevocable election to spread the loan charge over three years, which reduces the effect of stacking outstanding loans into a single year, although spreading is not necessarily beneficial for everyone – you may need to get advice on this.

The date 5 April 2019 falls into the 2018/19 tax year and so people who are affected by the loan charge need to file a 2018/19 tax return to declare their loan income (or 1/3rd of it if they make the irrevocable spreading election). The deadline to file a 2018/19 tax return containing loan income has been set as 30 September 2020.

How to tell if you are affected by the loan charge

HMRC have sent out 'notices to file' to people who they believe may have to report and pay the loan charge by the 30 September 2020 deadline. These were standard letters and they did not include any mention of the loan charge. A more recent reminder letter made it clearer that HMRC think you need to file a 2018/19 tax return because of the loan charge.

If you have received these letters, it is likely that HMRC have some information that suggests that you may have been paid through a loan scheme.

Although you may not have realised you were in a loan scheme, some possible signs that you were in one are:

  • Arrangements that offer to let you keep more of your pay than you normally would
  • A contract of employment showing that you’ll only be paid the National Minimum Wage, when you know you’ll be paid more than that
  • An agreement where you get payments that you are told are not taxable
  • Receiving more than one payment into your bank account each pay period
  • Perhaps paying a hefty fee which is deducted from your pay
  • Confusing or unclear paperwork (contract/payslips etc.) – or none at all

⚠️ You should check your position carefully, as not sending in a 2018/19 tax return, when one is due, will only make matters worse.


I was in a loan scheme. What do I need to do by the 30 September deadline?

30 September 2020 is the date by which you must:

  • report the loan amounts if you have not done so already via the online loan charge reporting form. A paper version can be obtained by calling 03000 599110
  • decide whether to elect to spread the loan amounts over 3 years (also done via the loan charge reporting form)
  • file your 2018/19 tax return and report the loan income in the relevant pages and boxes. You may need to include the Additional Information pages
  • pay the loan charge and any other tax due or agree a payment plan with HMRC (by calling 03000 599110 – depending on individual circumstances, people will be given as long as they need to pay what they owe).

⚠️ It is vital that you complete and submit a tax return even if you do not think you will ever be able to pay what you owe. This is because if you do not, you may be liable for late filing penalties, on top of what you owe by way of the loan charge.


Very occasionally, HMRC may decide not to pursue payment of the loan charge. This is sometimes known as remission. The tax is not permanently written off, but you will not receive further demands unless your circumstances improve unexpectedly. Remission is most common in the case of a person who is elderly, sick or long-term unemployed, has no assets and lives in rented accommodation. If you think you might be eligible for remission, TaxAid can help you put your case to HMRC.

How can I work out how much loan income I had?

If you did not even know you were in a loan scheme, it stands to reason that you will probably not have details of the amounts that you received in loans at your fingertips. However you need to try and get this information together urgently.

Once you have worked out whether you might have been paid via loan arrangements, to calculate the amount of your loan income, you should check any pay documents, payslips or other paperwork you received while performing that work.

If you do not have or cannot get any such paperwork, you should do everything you can to determine the amount you received in loans as closely as possible another way. For example, by trying to contact the umbrella company (or even the recruitment agency – who might be able to point you in the right direction) or by looking at the flow of money into your bank account.


Example: say you think you might have been in a loan scheme at the end of 2017, when you worked via an umbrella company (for around £10 per hour for around 35 hours a week). In 2017, the NMW rate was £7.50. You are likely to have been paid:

  • a basic minimum wage salary of 35 hours x £7.50 = £262.50 (taxed and reported to HMRC as normal) – this may appear in your bank account as an amount of around £240.35 (that is, £262.50 less deductions), and
  • an untaxed element paid separately – perhaps paid as something like £75 or £80 separately.

In this example, it would be the £75 or £80 that you need to report to HMRC as the loan income.


You should be able to get historic bank statements from your bank or building society or, as a minimum, banks should be able to provide a list of amounts you received from a particular employer. If you have online banking, statements going back several years can usually be accessed easily and for free.

If you go down this route, you should remember that the amount paid into your bank account will already be net (after deduction) of any scheme expenses – for example, any umbrella company fees. HMRC will only expect you to account for the net amount – in the example above the £75 or £80.

We know some people in loan schemes, may not have received two payments. If this applies to you, it will be harder for you to identify how much of the payment you received comprised your taxed 'normal' pay and how much comprised the untaxed element. One way of doing this would be to compare your net pay (after tax pay) per your payslips or P60 and the amount that you received into your bank account. Give or take, any difference in the two amounts may well be an untaxed 'loan' element.

If you don’t have your payslips or P60, you can get your pay and tax details from HMRC, either directly via the helpline, via TaxAid or your Personal Tax Account (you should be able to see your pay and tax details for the last four years). The result may not be 100% accurate, but is at least a starting point.

I don’t think I was in a loan scheme, what should I do?

If you received a notice to file, but you are sure you were definitely not in a loan scheme, you should contact HMRC on 03000 599110 to discuss.

HMRC may be willing to explain about the information that they have on record about you, that indicates to them that you were in a loan scheme. This may help you pinpoint where the problem arose or it may become clear at that point that the information HMRC have may not be accurate.

Depending on that discussion, they will either withdraw the notice to file a tax return or ask that you complete the tax return. If HMRC ask you to complete the return, you must do so even if you do not agree that you received any loans in the past.

If you do not disclose any loan income in the tax return (or enter a completely wrong amount), but HMRC's records still suggest that you were in a loan scheme, you can expect HMRC to issue an enquiry into the 2018/19 tax return. At this point, a deep dive into your affairs will occur and as part of this, you should be able to access and discuss any information that HMRC hold.

Where can I get some more help?

If you need help understanding more about the loan charge and/or help completing your 2018/19 tax return and you are on a low income, TaxAid can assist you.

If you are not on a low income, because of the complexity of the loan charge, you should consider obtaining a tax professional’s advice and assistance, even if it means having to pay.

A specialist tax adviser like a Chartered Tax Adviser or a Taxation Technician or a qualified general accountant will be able to help with the vast majority of Self Assessment tax returns.

As a first step, you should ask your friends/family for local recommendations. If this doesn’t work – look on the internet. Many accountants or tax advisers in practice on their own have websites – you should check that any adviser is a member of a professional tax or accountancy body (they may have a ‘badge’ on display and you can confirm this with the relevant body).

However, there is not long left until the 30 September deadline and so if you want a professional adviser to help you get your tax return prepared by 30 September 2020 you must ask quickly. It will help if you have the loan income figures outlined above available for them.

For more information on finding a paid adviser, see our website.

If you want to deal with things yourself but are concerned about speaking with HMRC directly, it may be useful to know that identified vulnerable taxpayers should be given special consideration, which could include being passed over to HMRC’s Extra Support team.


⚠️ If you cannot afford to pay for advice and you do not qualify for help from the tax charities – you must contact HMRC directly as soon as possible and certainly before 30 September 2020. You should not ignore any notice to file a tax return from HMRC even if you do not think you had any loans in the past.


Further reading

If you are starting from scratch in terms of what the loan charge is and what you need to do, we recommend that you read this article in conjunction with the other main articles LITRG have put out on this topic (in date order):

Are you affected by the 2019 ‘loan charge’? Help is available

The loan charge – here’s how to deal with it

Loan charge – additional information form FAQs

Loan charge changes: what they mean... and what they don’t

Loan charge: where are we now?

HMRC guidance:

Disguised remuneration: guidance following the outcome of the independent loan charge review

Report and account for your disguised remuneration loan charge

Update on the implementation of the loan charge

HMRC issue briefing: disguised remuneration charge on loans

How HMRC deals with and supports customers who have a tax debt

Contact: Meredith McCammond (click here to Contact Us)
(First published: 10/09/20)

 

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