The Loan Charge was introduced by the UK government in 2019 to tackle what HMRC sees as decades of tax avoidance by individuals who were paid through disguised remuneration schemes, particularly contractor loan arrangements.
Thousands of contractors, many working through umbrella companies or trust-based schemes, received income in the form of loans rather than salary. These loans were never intended to be repaid and were often promoted as fully legal at the time.
The Loan Charge requires these historic loans to be treated as taxable income and brought into charge in one go. For many affected contractors, this has created a significant tax bill stretching back 20 years.
What is the Loan Charge?
The Loan Charge is a tax policy introduced in the Finance (No. 2) Act 2017. It applies to “disguised remuneration” schemes where individuals were paid via loans from third parties – often through Employee Benefit Trusts (EBTs) or similar offshore structures.
The schemes claimed that loans were not subject to Income Tax or National Insurance, allowing users to receive most of their pay without deductions. HMRC has always argued these arrangements were artificial and designed to avoid tax.
Under the Loan Charge rules, if you received loan payments on or after 6 April 1999 and didn’t repay them or settle with HMRC, the total outstanding amount was treated as income on 5 April 2019.
Who is affected?
HMRC estimates that over 50,000 people have been affected, with a large proportion working in IT, finance, management consulting, and other contract-based industries.
Many users were contractors working through umbrella companies or specialist payroll providers who promoted loan schemes as “compliant” or “HMRC-approved”. In some cases, users were told that the schemes had been vetted by barristers or received favourable tax opinions – but this provided little protection once HMRC challenged the arrangements.
How did these schemes work?
A typical scheme operated like this:
The contractor signs an agreement with a promoter or payroll provider.
The contractor works on a client contract as usual and submits timesheets.
The umbrella or scheme provider pays the contractor a small basic salary (typically minimum wage).
The rest of the payment is issued as a “loan” from a third-party trust or offshore vehicle – with no tax or NI deducted.
The loan was usually never intended to be repaid and was structured to avoid tax liabilities.
These arrangements were common from the early 2000s until around 2010, when HMRC began to clamp down. However, many users continued participating until the mid-2010s, often unaware of the full tax implications.
Why has it been controversial?
The main point of criticism is that the Loan Charge applies retrospectively, taxing income received as far back as 1999 in a single tax year – even if those schemes were not explicitly unlawful at the time.
Thousands of individuals have faced large, unexpected tax bills. In some cases, contractors say they acted in good faith based on professional advice and are now being punished for schemes they didn’t fully understand.
The Loan Charge has been the subject of multiple parliamentary debates, media campaigns, and legal challenges. Several MPs and campaign groups have described the policy as unfair and excessive.
Following growing public pressure, the government announced a review in 2019, which led to some key changes.
What changed after the 2019 review?
In December 2019, following a review by Sir Amyas Morse, the government agreed to modify the scope of the Loan Charge. Key changes included:
The charge would no longer apply to loans made before 9 December 2010, unless the scheme had been disclosed to HMRC and HMRC had opened an enquiry.
There would be no Loan Charge for users who reasonably disclosed their loan scheme use on a tax return and HMRC failed to take action.
HMRC introduced a new system for spreading payment over multiple years, and offered time-to-pay arrangements with no upper limit.
If you’ve already settled with HMRC, you are not affected by the Loan Charge itself. If you haven’t, your options will depend on your personal circumstances:
Check whether your loans fall outside the scope of the charge (e.g. pre-2010 and not under enquiry).
If the Loan Charge applies, you may be able to agree a payment plan with HMRC based on your ability to pay.
In some cases, it may be possible to challenge the assessments through tribunals or appeal channels – seek professional advice.
HMRC has said it will not force taxpayers to sell their homes to pay Loan Charge debts, and flexible payment terms are available depending on income and assets.
Are schemes still being used?
Yes, some disguised remuneration schemes are still being marketed to contractors, often under new names or with more complex offshore structures. These are high-risk and should be avoided.
If you’re still being paid via a loan or advance that claims to be “tax-free”, it’s best to disengage immediately and seek advice from a qualified accountant or tax adviser. HMRC now publishes a regular list of named tax avoidance schemes and promoters.
What if you think the tax is unfair?
Many taxpayers believe the Loan Charge is unjust, especially for those who relied on advice or had no intention of avoiding tax. Several campaign groups are still pressing for the policy to be withdrawn or further reformed.
However, the courts have broadly upheld HMRC’s position. In most cases, if you used a loan scheme that falls within the Loan Charge rules, you will need to pay the tax due or agree terms with HMRC.
Final thoughts
The Loan Charge has affected thousands of contractors, many of whom were simply following advice they believed was sound at the time. The reality in 2025 is that the rules are here to stay – and ignoring the issue won’t make it go away.
If you think you may be affected and haven’t yet settled, speak to a tax specialist before taking action. Make sure you understand whether you fall within scope and what repayment options may be available.
