Loan Charge Review: Government response and recommendations | Fieldfisher
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Loan Charge Review: Government response and recommendations


United Kingdom

Following an independent review by Sir Amyas Morse, the UK government has announced "a package of changes" to the controversial 'Loan Charge'.

  What is the Loan Charge?

The Loan Charge, which was first announced in 2016 and became effective from 5 April 2019, sought to  tax users of disguised remuneration tax schemes (such as Employee Benefit Trusts (EBTs) and Employer Financed Retirement Benefit Schemes (EFRBs)), who had not already settled tax deemed to be owed by HMRC.

Users of disguised remuneration schemes were encouraged to reach a settlement with HMRC ahead of the Loan Charge coming in to effect.

From such settlements and the Loan Charge itself, HMRC expected to raise £3.2 billion in additional tax revenue.

In justifying the implementation of the Loan Charge, HMRC said:

"Disguised remuneration schemes are tax avoidance arrangements that seek to avoid Income Tax and National Insurance contributions (NICs) by paying scheme users their income in the form of loans. The loans were never intended to be repaid, so they are no different to normal income and are taxable.

"The charge on outstanding disguised remuneration loans – known as the ‘loan charge’ – was introduced to tackle the use of disguised remuneration schemes (…) The charge applies to all loans made since 6 April 1999 if they are still outstanding on 5 April 2019 and the recipient has not settled the tax due."

The Loan Charge was widely criticised, including by Sir Amyas Morse, former Comptroller and Auditor General of the National Audit Office, in his Review of the policy, commissioned in September 2019 and published the following December.

Notably, the Review stated that:

"The evidence provided to the Review prompts serious questions about how proportionate the Loan Charge was in terms of its design and effect on individuals;

"Elements of the Loan Charge go too far in undermining or overriding taxpayer protections; and

"For the twenty year look-back period of the Loan Charge to be proportionate and justified, taxpayers would need to have acted in a way that was perverse in light of a clear legal position. This was not the case. I therefore conclude that the Loan Charge should not apply to loans entered into by either individuals or employers before 9th December 2010."

Government response

In its response to the Review, published on 19 December 2019, the government said it recognised some of the concerns raised and accepted the report's recommendations to mitigate these concerns.

In summary, the government has made the following key commitments:

(1)          The Loan Charge will now only apply to outstanding loans made on, or after, 9 December 2010 (as opposed to from 6 April 1999);

(2)          The Loan Charge will not apply to outstanding loans made in any tax years before 6 April 2016 where the avoidance scheme use was fully disclosed to HMRC and HMRC did not take any action (such as, for example, opening an enquiry); and

(3)          An extension to previously announced 'time to pay' arrangements.

Further, HMRC has agreed to refund voluntary payments (known as ‘voluntary restitution’) already made in order to prevent the Loan Charge arising and included in a settlement agreement concluded after March 2016 (when the loan charge was announced) for any tax years where:

  • The Loan Charge no longer applies (loans made before 9 December 2010); or

  • Loans were made before 6 April 2016, the avoidance scheme use was fully disclosed to HMRC, and the department did not take action.

What actions should I take?

HMRC has published guidance for those who may be affected by the Loan Charge here. In broad terms, the guidance applies to three categories of individual/employer:

  1. Those that have reached settlements with HMRC
You may be entitled to a refund of some or all of the amounts paid.
  1. Those with pending settlements
HMRC has agreed to revisit settlement calculations. Less tax may now be due.
  1. Those who have or are about to return the Loan Charge in their Self Assessment Tax Return
HMRC advises that you should:
"Look carefully at the changes to the loan charge rules and reflect them as accurately as possible on your Self Assessment tax return. If you are unsure of your position, you can wait until further guidance and draft legislation is published in early 2020."

The changes will be implemented by legislation that will be introduced in 2020. HMRC has said that the draft legislation and more detailed guidance will be published in "early 2020".

If you fall within any of the three categories described above, we recommend that you seek advice in relation to your position before seeking to address the matter with HMRC.

A list of published government documents relating to the Loan Charge can be found here.

For more information on how Fieldfisher can assist you in determining your position and what course of action is most appropriate, please contact

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