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Updated on 6 April 2024

Loan charge

If you have been in disguised remuneration arrangements in the past, even if you did not really know or understand this, you may now be affected by the ‘loan charge’. 

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We know that there are a lot of people who have not yet met their loan charge obligations and that this may be for many different reasons. On this page, we summarise the points that are most likely to be relevant to a group of people who may find themselves affected by the loan charge – umbrella company workers – and help you understand how to take the first steps towards resolving your situation.

We have published many news articles to date, looking at the loan charge situation in some detail. We have retained these articles to form an extensive bank of guidance on the loan charge. You can find a link to it at the end of this page. 


Historically, some umbrella companies have paid individuals for work done in the form of an interest free, non-repayable loan that is not subject to income tax or National Insurance contributions (NIC), rather than ordinary salary, which would be. HMRC call this ‘disguised remuneration’. HMRC’s view is that these loan schemes don’t work and indeed, in 2011, the law was changed to try and stop people using them.

However, scheme providers exploited various loopholes in the law, which meant that these types of schemes continued to be offered, including – increasingly – by some umbrella companies to agency workers like locum nurses and supply teachers. 

Several years ago, the government closed these loopholes and gave HMRC powers to impose a second taxing point for historical schemes, in the form of the ‘loan charge’. 

Initial proposal

Originally (in the absence of any action taken to ‘settle’ beforehand – see more under ‘Settlement’ below), the loan charge was going to treat an amount equal to the value of all outstanding ‘disguised remuneration’ loans made since 6 April 1999 loans, as income arising on 5 April 2019. Following concerns raised about the impact of the loan charge, the government commissioned an independent review of it (the Morse review). The review reported to the government on 13 December 2019.

Following the Morse review, some changes were made to the original loan charge rules. For example, the review said that the loan charge should not apply to loans entered into before 9 December 2010. However, if you have open enquiries or assessments (more on these below under ‘Enquiries and assessments’) for those earlier years, you may still owe HMRC money even though the loan charge does not apply.

The Morse review also introduced an exception to the loan charge for loans made on or after 9 December 2010 and before 6 April 2016, if the avoidance scheme used 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 an assessment.

If you already settled with HMRC to avoid the loan charge on these loans, you may have been due a refund. In two articles written for Accounting Web, which can be accessed here and here, we give a high-level overview of the refund or ‘voluntary restitution’ scheme that was developed to administer refunds. 

The loan charge

Following the Morse review, the default position is that the loan charge treats an amount equal to the value of all outstanding disguised remuneration loans made on or after 9 December 2010, and outstanding on 5 April 2019, as employment income arising on 5 April 2019.

The date 5 April 2019 falls into the 2018/19 tax year, so people who are affected by the loan charge need to file a 2018/19 tax return to declare their loan income. The deadline to file a 2018/19 tax return containing loan income was set as 30 September 2020 by the Morse review (rather than the normal deadline of 31 January 2020). See ‘What you needed to do by 30 September 2020’ below.

Impacts of the loan charge 

Put simply, the amounts of loans are 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.

A higher amount of income in 2018/19 may mean things like the high income child benefit charge having to be paid, and it could stop parents from opening tax-free childcare accounts. In addition, it could also trigger higher rates of tax and student loan repayments and cause loss of the personal allowance.

Our understanding is that the loan charge should not be counted as income for tax credits and universal credit and certain other means tested benefits, but you may wish to double check the exact rules for the benefit(s) you are on with a welfare rights organisation, such as Citizens Advice.

Following the Morse review, you may be able to 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 – see under the heading ‘Spread election’ below. 

Employer obligations 

HMRC consider the loan charge as employment income, and this means that there is a pay as you earn (PAYE) tax and NIC obligation on the employer. Under general principles, where there is a PAYE obligation, HMRC should seek to collect the tax from the employer (your umbrella company) in the first instance.

Although the initial liability falls to the employer, the loan charge can be passed to individual workers by HMRC in any of the following circumstances:

  • If the employer is located outside the UK (‘offshore’) and they have no UK tax presence, they are outside the PAYE net and you will have to pay the liability yourself via your tax return. Please note that ‘offshore’ includes the Channel Islands and the Isle of Man.
  • Where the employer has been dissolved or no longer exists – again, you will be responsible for reporting the income and paying the tax to HMRC via your tax return.
  • If the employer is still around and has the money to pay the loan charge, but HMRC are of the opinion that you received payments knowing that the employer had wilfully failed to deduct the amount of tax which should have been deducted from those payments, HMRC may try and collect the tax from you directly.
  • If the employer still exists but they are unable to pay. Where options such as giving employers time to pay are exhausted, and it is clear that the employer is unable to pay the outstanding liability, HMRC will issue a formal bill to the employer in respect of the unpaid tax. Once this bill has been unpaid for 30 days HMRC will try and collect the tax from you directly. See the guidance on ‘Enquiries and assessments’ below.

These exceptions will catch most loan arrangements, meaning that there is little point in relying on HMRC getting their money from the employer rather than you. Furthermore, please be aware that late payment interest will be accruing on any debt that HMRC initially try and collect from your employer, but subsequently transfer to you.

Work out if you are you affected

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.

HMRC may be writing to you with letters about disguised remuneration or the loan charge. Although they might be confusing and/or not seem relevant to you, it is important to get to the bottom of them because they suggest that HMRC have information that shows you are affected. Similarly, if you have received a notice to file a 2018/19 tax return and/or other communications about that tax return and you are not really sure why, it could be because HMRC have data that suggests you received loan income and need to deal with the loan charge.

A good starting point to working out if you are affected is to look at HMRC’s list where they name current tax avoidance schemes. This information can be helpful to understand how you might have ended up being paid in loans, as the list has a section explaining the names of the umbrella companies involved and how each scheme is claimed to work.

Because of the way the schemes typically worked, another way of working out whether you might have been paid via loan arrangements is to look at the flow of money into your bank account:

Example: loan income

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 national minimum wage (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, the £75 or £80 is potentially the loan income that is caught by the loan charge.

You should be able to get historic bank statements from your bank or building society or, at 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. Be aware that the payment may be from an entity with a different name to your employer or umbrella company, although it will usually appear around the same time as your normal pay deposit. 

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 (your 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 may be able to get your pay and tax details from HMRC. If they won’t give you them informally, you could try making a subject access request.

What you needed to do by 30 September 2020

30 September 2020 was the date by which you needed to:

  • report the loan amounts to HMRC via the loan charge reporting form,
  • 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, and
  • pay the loan charge and any other tax due or agree a payment plan with HMRC.

You can find out more about all these elements below.

Loan charge reporting form 

You must accurately report any outstanding disguised remuneration loans that are subject to the loan charge to HMRC on the loan charge reporting form. As confirmed in HMRC’s guidance on the loan charge, you are no longer able to submit the form online.

You should ask for a paper version of the loan charge reporting form by contacting HMRC by either:

  • email at [email protected] using ‘loan charge reporting form request’ in the subject line, or
  • telephoning 0300 322 9494

A paper version of the form was previously shared with us by HMRC and is available to view here. This is an example of the form and should not be used to report the loan charge. You should contact HMRC for the most recent version to complete.

If you want to make the irrevocable spreading election (more on this below under ‘Spread election’), this form is the method by which you legally do that.

The loan charge reporting form needed to be completed and submitted to HMRC by 30 September 2020. Although the 30 September 2020 deadline has passed, you may still be able to make a late spreading election by completing the form. There are limited circumstances where HMRC can accept a late election. The Statement of Practice sets out the criteria that they’ll consider for late elections and the process for making a late election.

If you attempt to make a late election, strictly, you should include your full outstanding loan balance in your 2018/19 self assessment tax return (although you might indicate that the figures are provisional), until an officer of HMRC has provided confirmation that the late election has been accepted. HMRC will consider late elections on a case-by-case basis and write to you to let you know their decision. Please be aware, this can take some time.

When completing the loan charge reporting form, you will need to provide your personal details (name, address, telephone number, email address, National Insurance number) and details of the arrangements, including:

  • the scheme name (if you do not know the exact name you should use a name that helps to identify it – for example, ‘Umbrella company XX loan scheme’),
  • the start and end dates of the schemes you used (estimated, if necessary),
  • a HMRC case reference number, if you have one,
  • the disclosure of tax avoidance scheme (DOTAS) number, if you have one,
  • the total loan amount in each tax year, including any amounts repaid or written off (if you are a lower paid agency worker who inadvertently got caught up in an umbrella company loan scheme, there are unlikely to be any amounts repaid or written off),
  • any amounts of tax or NIC that have already been settled (again, there are unlikely to be any amounts of tax/NIC already settled), and
  • Employer details (name, PAYE reference – this looks something like 123/AB4565 and you may be able to find it on your payslips or P60/P45 – if not, you can type ‘Unknown’).

In the context of lower paid agency workers, the ‘employer’ will probably be the umbrella company you worked through at the time you were receiving loans, rather than the agency that found you the work or the end client that you worked for.

Even if you can’t answer everything, you should provide as much information as you can. Note that the online form does allow you to type ‘Unknown’ and some of the questions have a ‘Do not know’ option.

Spread election 

One of the recommendations coming out of the Morse review was that taxpayers should be entitled to opt to spread their outstanding loan balances over three years, to mitigate the impact of taxpayers paying tax at a higher rate than they ordinarily would. This reduces the effect of stacking their outstanding loan balances into a single year, which artificially created an increased exposure to a higher rate of income tax.

This means that rather than have all your outstanding loans treated as income in the 2018/19 tax year, you can have a 1/3rd treated as income in 2018/19, a 1/3rd treated as income in 2019/20 and a 1/3rd treated as income in 2020/21.

This could benefit you if you are on a lower income as it means it is more likely that your loan income will be taxed at 20% rather than higher rates. If you still have some personal allowance spare for those tax years, you might pay less than 20%. Please note that spreading is not necessarily beneficial for everyone.

See the examples below to help understand how making an election could benefit you. However, you need to consider whether it is the right thing to do based on your individual circumstances. 

Example: Anna

Anna was in a loan scheme during the tax years 2014/15 and 2015/16. In 2014/15, she received a normal salary of £10,000 and an untaxed loan of £12,000. In 2015/16, she received a normal salary of £9,000 and an untaxed loan of £8,000. In 2018/19, she has income of £19,000.

Under the loan charge, the £20,000 of untaxed loans will be treated as income in 2018/19. As Anna is a basic rate taxpayer in 2018/19 and the extra income does not push her into a higher rate bracket, this would mean tax of £4,000 (£20,000 multiplied by 20%).

With a spread election in place, Anna would only need to include £6,666 of extra income in her 2018/19 tax return, resulting in an extra £1,333 of tax. She will need to do the same again for the following two years. Overall – she will have paid the same amount of tax as before, but because it is in more manageable chunks it makes it more likely that Anna will be able to pay without having to arrange a payment plan, which will save her interest.

Example: Brian

Brian was in a loan scheme during the tax years 2014/15, 2015/16 and 2016/17. In 2014/15, he received a normal salary of £10,000 and an untaxed loan of £18,000. In 2015/16, he received a normal salary of £10,500 and an untaxed loan of £18,000. In 2016/17, he received a normal salary of £11,000 and an untaxed loan of £18,000In 2018/19, he has income of £24,000.

Under the loan charge, the £54,000 of untaxed loans will be treated as income in 2018/19. Brian already has income of £24,000, so only has some of his basic rate band available (£22,350) to use against the extra income. This would mean the remaining £31,650 of it will be taxed at 40%. This gives a total tax amount of £17,130 (£22,350 multiplied by 20% (£4,470) and £31,650 multiplied by 40% (£12,660)). This would be due to HMRC by 31 January 2020.

It is worth noting that as Brian has two children, and receives child benefit, the high income child benefit charge (HICBC) would apply for 2018/19 if the loan charge arises. As Brian has over £60,000 of income in this year, the charge would be equal to 100% of the child benefit payments. This is repayable to HMRC - additional to the loan charge tax.

With a spread election in place, Brian would only need to include £18,000 of extra income in his 2018/19 tax return. Adding this to his existing income of £24,000, gives him a total income of £42,000. This means he does not get pushed into the higher tax bracket (which starts at £46,350) and he does not pay the child benefit charge. Assuming that his situation remains the same over the next two years, he will pay £3,600 extra tax in each of the years – a total of £10,800. This is £8,119 less than before.

Example: Cleaverson

Cleaverson was in a loan scheme during the tax years 2012/12, 2013/14, 2014/15, 2015/16, 2016/17 and 2017/18. In all years, he received a normal salary of £5,000 and an untaxed loan of £20,000. Cleaverson has now retired and in 2018/19, he has income of £6,000.

Under the loan charge, the £120,000 of untaxed loans will be treated as income in 2018/19. As Cleaverson’s total income in 2018/19 is £126,000, he is not entitled to any tax-free personal allowance. Because of his £6,000 income, Cleaverson only has some of his basic rate band available (£28,500) to use against the extra loan charge income. This would mean the remaining £91,500 of it will be taxed at 40%. This gives a total tax amount of £42,300 (£28,500 multiplied by 20% (£5,700) and £91,500 multiplied by 40% (£36,600)).

With a spread election in place, Cleaverson would have total income of £46,000 in 2018/19 (£6,000 existing income and £40,000 loan charge income). This means he does not get pushed into the higher tax bracket and he does not lose his tax-free personal allowance. Cleaverson will pay nothing on £6,500 of the loan charge income (due to his unused personal allowance) and £6,700 extra tax on the remainder of the loan charge income in 2018/19 and – if his situation does not change – around the same in the following two years. This is £20,100 in total, as opposed to £42,300 – so less than half of what it was before.

2018/19 tax return

Assuming HMRC have issued you with a 2018/19 tax return, you need to complete and submit it as soon as possible. If you have been sent a determination, please see our guidance below in ‘Determinations’.

The total of outstanding loans should be reported in the SA101 Additional information supplementary pages, (box 21 on the paper form (the online form boxes may be slightly different)) if the employer was offshore or insolvent as at 5 April 2019. Otherwise, you will need to include the loans in box 1 on the employment pages of the 2018/19 tax return and tick box 8 to confirm that box 1 includes disguised remuneration income. We suggest you give an explanation of the figures included in box 1, by writing in the space for additional notes and information (box 19). Note that it is too late to file the 2018/19 tax return online and you will need to post a paper version to HMRC. We recommend that you obtain proof of postage.

Remember that in addition to reporting your outstanding loans, you must also complete the rest of the tax return. Even if you only have to complete a return because of the loan charge, you must also include any other income (and taxes paid) in 2018/19, as it is a ‘return’ of all of your taxable income for the year.

  It is important 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.

It is important to note that payments on account (POAs) for 2019/20 may be calculated in the tax return based on the loan charge. Depending on your circumstances, a claim may need to be made on the tax return to reduce the POAs.

If you only need to complete a 2018/19 tax return because of the loan charge, then you should consider whether you need to submit them on an ongoing basis. If you do not, you should ask HMRC to close down your self assessment record, otherwise they will keep sending you tax returns to complete.


Some people will owe a large amount of money to HMRC because of the loan charge. If you can’t pay what you owe up front, payment arrangements known as time to pay arrangements are available to be made.

Following the Morse review, it was decided that where a taxpayer has no other sources of wealth and they earn less than £50,000, they should be automatically entitled to a minimum of a five year payment plan, and where they earn less than £30,000, a minimum of seven years, without needing to complete the HMRC income and expenditure form.

We understand that when measuring sources of wealth, HMRC will take into consideration disposable assets – but that this would not include a normal family car for example.

This does not mean that people who earn £50,000 or more cannot get a payment plan or that HMRC won’t give more than five or seven years – bespoke payment plans are available based on an income and expenditure assessment.

Following the Morse review, it was also decided taxpayers should only be asked to pay up to half their disposable income each year and a reasonable proportion of their liquid assets (for example, savings or investments), unless they have very high levels of disposable income.  

Note that HMRC have published the income and expenditure form, in order to help ensure transparency and consistency in how disposable income and payment arrangements are calculated.

We know that there are many people talking online about bankruptcy in connection with the loan charge and that this can sound very scary. An HMRC publication sets out their position on bankruptcy and not forcing someone to sell their main home to pay the loan charge.

HMRC will normally only pursue bankruptcy as a final option where there are valuable assets that could be used towards payment of the debt, and they have just been unable to come to any other reasonable arrangement with you. Bankruptcy can, however, be initiated by taxpayers themselves, where they are insolvent and want a fresh start. You can read more about bankruptcy as an option from TaxAid. For homeowners, HMRC will not force the sale of the main home but may consider putting a legal charge on a property, which means that the debt is repaid when the house is sold. Again, these arrangements are only used as a last resort in very specific circumstances.

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, and has no assets and lives in rented accommodation.

More broadly, however, HMRC should deal with loan charge cases in line with their general debt strategy, which means that identified vulnerable taxpayers will be given special consideration, which could include being passed over to HMRC’s Extra Support Team. Vulnerable taxpayers could potentially include those on low pay who were ‘passive’ users of loan schemes, that is, people who may not have really understood what was happening with their pay and taxes or who had little choice but to join schemes if they wanted to work.

You need to be open about difficulties you are facing when dealing with HMRC, so that they can both assess whether you need that very specialist help and to understand more generally if there are particular issues of yours which they need to take into account when helping you to resolve your loan charge and/or overall tax position.

If you need to agree a time to pay arrangement with HMRC, call the loan charge helpline on 0300 322 9494 to discuss payment. You should be aware that any payment arrangements made with HMRC carry ‘forward interest’. This is not a specific charge to those facing the loan charge, and HMRC has no discretion here. It is obliged by law to charge interest and cannot reduce or ‘freeze’ the interest to help you.

For more information on time to pay arrangements, please see HMRC’s guidance.

Interest and penalties

The original 2018/19 tax return filing and payment deadline was 31 January 2020. This was essentially deferred to 30 September 2020 following the outcome of the Morse review. Although the strict legal deadline remained 31 January 2020, HMRC said they would waive any interest and penalties – on the proviso a 2018/19 tax return which included full and accurate details of loans subject to the loan charge was subsequently filed and payment of the tax was made (or a payment plan agreed), by 30 September 2020.

If you missed the 30 September 2020 deadline for reporting and paying the loan charge (or agreeing a payment plan), you may now face penalties and interest for late filing and payment, on top of what you owe to HMRC by way of the loan charge. These potentially run from 1 February 2020 rather than 1 October 2020. The late filing and late payment penalty regimes are described on our page Tax penalties and interest.

Even if you can avoid any late payment penalties (because you have a 'reasonable excuse', for example – see below), you may still have to pay late payment interest. You can find the late payment interest rates on GOV.UK.

Because of increasing rates, it is important that anyone with loan charge issues understands the impact that late payment interest may have on the overall amount owed. As set out in our guidance, HMRC do not have any discretion over whether to charge interest, and how much, even in exceptional circumstances or where their actions (or inactions) have contributed to the overall amount of interest payable. However, if you are out of pocket as a result of HMRC’s actions, you may consider making a formal complaint, which can sometimes result in a compensation payment.

In addition, it is worth being aware that while HMRC have no specific power to mitigate interest, they do have some discretion under their general “collection and management” powers. Authority is delegated to the specialist Interest Review Unit, to make decisions on exercising discretion over payment of interest where an objection is raised.

Reasonable excuse

HMRC have stated in their guidance that they will consider waiving late filing and late payment penalties on a case-by-case basis for any 2018/19 tax returns filed after 30 September 2020. This power is likely to be used in situations where someone had a 'reasonable excuse' for late filing and payment (and importantly – then acted as soon as possible to fulfil their obligations after the reasonable excuse ended).

A combination of reasons, rather than any one thing, may form a reasonable excuse. You should also not be put off claiming reasonable excuse just because your situation does not exactly fit the examples given in any guidance or commentary.

If HMRC agree with the appeal the penalty will be removed. If they do not, it is possible to challenge HMRC’s decision as HMRC do not have the final word on whether or not an excuse is reasonable; that question is ultimately for the courts to decide. If someone is unable to agree with HMRC, they can ask HMRC to review the decision and/or appeal to the independent Tax Tribunal.

Examples of reasonable excuses can include things like:

  • problems with online filing
  • physical or mental disabilities
  • problems caused by the coronavirus (COVID-19) situation
  • where you did not understand the system and needed help from, for example, TaxAid or from HMRC. In this case, you are usually expected to have taken reasonable steps to get help with your tax affairs. Of relevance will be how difficult your tax affairs are and why, in your particular circumstances, you have found them too difficult to deal with.


Due to the amount of time that has passed since September 2020, if you have still not filed your 2018/19 tax return, HMRC may now have sent you a ‘determination’ of the tax they think you owe. This is in addition to them levying late filing/payment penalties and charging interest.

A determination is an estimate of the tax due for a tax year, based on the information that is available to HMRC – this includes information about the loans that you had. Although a determination is an estimate, it must be made ‘to the best … information and belief’ of the HMRC officer making it. Sometimes it will be an overestimate as HMRC may not be aware of your individual circumstances and the reliefs etc. available to you. For example, it may include payments on account (POAs) for 2019/20. However, the idea is to try and prompt you to deal with your outstanding obligations and bring your tax affairs up to date.

  Do not ignore the determination. If you take no action in response to the determination, you can expect HMRC to start proceedings to collect the tax debt that is now on your self assessment record, even if it is excessive. You can read more about what HMRC debt collection action might involve on from TaxAid

If you have been sent a determination, you should take steps to file your tax return for 2018/19, including the loan charge, as soon as possible. You should also pay the tax due or contact HMRC to set up a time to pay arrangement. See the information in ‘What you needed to do by 30 September 2020’ for more on this.

You need to file a tax return within the required time limit to replace the determination. The required time limit is usually:

  • three years from the ordinary filing date of the self assessment tax return, or
  • if later, 12 months from the date of the determination.

This means that if HMRC issued you with a determination on 30 January 2023, you have until 29 January 2024 to file a tax return to replace it.

If you miss the time limit for submitting your tax return after receiving the determination, then the determination stands unless HMRC agree a claim for ‘special relief’ – this is explained in detail by TaxAid.

Enquiries and assessments

HMRC are writing to people who are affected by the loan charge with determinations (as set out above), but also with enquiries and assessments.

You may be issued with an enquiry where you have submitted a tax return that HMRC think does not contain the right amount of the loan charge.

An enquiry is the formal process by which HMRC check in detail that the information on a tax return is correct and complete. To commence an enquiry, an HMRC officer must issue a formal enquiry notice to the taxpayer under the relevant legislation (s.9A TMA 1970) within the time allowed. HMRC normally have a period of 12 months after the day on which a return is delivered to notify their intention to enquire into a tax return. When an enquiry is opened, the taxpayer and HMRC will discuss the figures and, to conclude an enquiry, HMRC can issue a formal closure notice and if appropriate, assessments, penalty determinations and amended figures for the tax return. Often (depending on the facts for each enquiry), HMRC will propose to enter into a ‘contract settlement’ (see ‘Settlement’ below) setting out the tax, interest, and penalties (if appropriate) to which you are liable, rather than issue a formal closure notice etc.

You may be issued with an assessment:

  • Where you have not submitted your 2018/19 tax return and HMRC have not issued a determination (see above).
  • Where HMRC did not start an enquiry into your tax return but think you have not paid the right amount of tax. If HMRC are outside the enquiry window, then HMRC must meet the conditions to validate a discovery assessment and must be within the normal or extended time limits that apply to discovery assessments.
  • Where your employer was required to operate PAYE on the loan charge income, but did not. This assessment may include something called a s222 charge which means a further tax charge is due as well as the loan charge itselfHowever HMRC have recently explained that in certain circumstances they won’t seek to collect this further tax charge - see GOV.UK.

The key message is that if you have an assessment from HMRC that you disagree with, you should appeal it and ask to postpone the tax due and do this within 30 days of the assessment date.

You may want to appeal the validity of the assessment in its entirety or just the numbers that HMRC have assessed. HMRC should have sent you a schedule which provides more information about how the additional tax has been calculated based on information available to them. Sometimes the amount will be an overestimate as HMRC may not have full or reliable information available to them about your loans and/or they may not be aware of your exact circumstances and the reliefs etc. available to you. Have they calculated the loans properly or have they made assumptions that you can show to be incorrect? Are you entitled to spread the additional income over several years and, if so, have HMRC correctly reflected this?

If you appeal, you can ask for payment of all or part of the tax in dispute to be postponed. This means you would not have to pay the amount while the appeal is being dealt with, however interest will continue to run.

  It is essential to note that if you do not specifically ask to postpone the tax, then HMRC can start debt collection proceedings even if the assessment is under appeal.

Once you have appealed and requested postponement you can ask HMRC to send you a revised statement of account if they have not already done so and you should check that the assessment charge has been ‘suspended on appeal’.

A letter of appeal is initially to be sent to HMRC. However, if the matter cannot be resolved between you and HMRC then you can make a further appeal to the independent Tax Tribunal. There can be strict time limits for doing so which should be set out clearly in HMRC’s letters. However, you do have the right to notify the Tribunal of your appeal as soon as you have sent the letter of appeal to HMRC, to help set things in motion with the Tribunal.

Enquiries and assessments are very complicated. There is much more information available from our guidance archive (see under the heading LITRG guidance, at the bottom of this page).


For people who have open enquiries and assessments for the tax years where they were paid via loans, the loan charge is not the end of the story – paying it does not resolve the past liabilities. Any underlying tax disputeseither need to be ‘settled’ or litigated (taken to the independent Tax Tribunal or court).

Settlement includes cases concluded formally (for example, by HMRC issuing amendments or assessments which you accept) or by contract. The latter offers an administrative convenience, particularly if HMRC’s enquiries/assessments cover a number of tax years where, for example both they and the taxpayer agree over the amounts of tax, interest and penalties that need to be paid. By entering into the process and signing a ‘letter of offer’, you will be admitting the tax liabilities and any interest and penalties, in return for a monetary sum and HMRC agreeing not to enforce their formal powers.

HMRC have issued terms under which those with loan charge issues can voluntarily settle:

  • The November 2017 terms – now closed. If people used these terms and settled their position, they could avoid the loan charge.
  • The 2020 terms – for those who did not get into the November 2017 process but still need to settle their affairs. Where you have paid the loan charge, any amount you have paid will be taken into consideration when calculating the settlement amount.

Note that HMRC have confirmed that for those who have not paid the loan charge yet, they can deal with both parts (the 2018/19 loan charge and the earlier enquiry or assessment) simultaneously under the 2020 terms.

They have also introduced the residual tax concession, whereby people who have paid the appropriate amount of loan charge may not need to pay any balance of ‘residual tax’ flowing from the earlier enquiry or assessment, where this is higher.

The official guidance on how your liabilities will be calculated under the 2020 terms can be found on GOV.UK - check the ‘contractor’ sections of the basic guidance and the more detailed guidance.

What a settlement includes

The amount of each settlement will be different and will be based on the individual’s circumstances. Factors that may be relevant include: how many open enquiries you have and for which years, amount of loans received in each year, the type of scheme, taxable income during the years when loans were received, if you had legitimate expenses or deductions, how much loan charge has been paid or has been arranged to be paid (as this can be credited), whether the residual tax concession applies, whether any accelerated payment notices (APN) have been paid and so on.

A settlement may include an inheritance tax charge depending on the type of scheme. In addition, there will usually also be late payment interest and sometimes penalties.

Here are some things to note:

  • We have heard that sometimes HMRC’s settlement calculations can be unclear. If this is the case for you, your first port of call should be back to HMRC to request a clear breakdown.  
  • HMRC may use information that has been provided by a party other than you, to carry out their settlement calculations. You need to check their figures carefully, as sometimes these figures may be incorrect, or they may be based on an assumption or estimate which could be disadvantageous to you.  
  • We appreciate that the calculations can be very complex. You should not assume that HMRC’s calculations are correct - you should check them carefully.
  • HMRC will usually want to achieve the full amount of tax it thinks is owed, however occasionally, it may be possible for HMRC to agree to a reduction.

If you are looking to settle with HMRC and have any doubts about their calculations at all, you should take professional advice to ensure that your settlement is correct and fair (see ‘Where to get help’ below).

Where to get help

HMRC's phone numbers are 0300 322 9494 (loan charge helpline) and 0300 053 4226 (settlement helpline).

HMRC’s main pages of guidance can be found in HMRC’s collection.

One of the most useful HMRC publications is their briefing on how they will help taxpayers settle or pay the loan charge. This also includes a run-down of the support HMRC can provide to taxpayers in difficulty.

If you need help dealing with HMRC (in terms of asking them to accept a late spread election or use their reasonable excuse powers, for example) or need to file a late 2018/19 tax return containing the loan charge or simply need advice on what to do to regularise your situation, then you could consult a professional tax adviser who may be able to assist you and could lead any discussions with HMRC on your behalf.

There are some tax and legal consulting firms with specialist loan charge knowledge. A quick look on some contractor forums, where they regularly post updates and information, should provide you with some options. Check that any firm is a member of an appropriate professional body (such as the Law Society or the Chartered Institute of Taxation).

If you are on a low income, are in financial difficulty, or believe that you are in a vulnerable position and cannot afford to engage a paid advisor you might qualify for help from TaxAid.

TaxAid may be able to provide you with free advice and assistance with loan charge issues. For example, they may be able to help establish what stage you have reached with HMRC in the settlement process and the source of the figures that HMRC have used to calculate your tax liability.  In some cases, it may be that estimated assessments or determinations have been used and it may be possible to submit late appeals against some of these charges.

Loan recall

We are aware that some people are receiving loan demands from certain companies asking them to repay loans which they have already settled the tax on or paid the loan charge to HMRC.

For the official government guidance on repaying a disguised remuneration loan to a third party, go to GOV.UK.

Our article setting out what you need to do to protect yourself from a loan demand can be found in the loan charge news archive below.

LITRG guidance

LITRG have put out many detailed articles on this topic. They are listed below in date order.

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