Disguised Remuneration and the Loan Charge: What to Do in 2026

What is disguised remuneration?

Disguised remuneration is HMRC's umbrella term for arrangements where employment income is paid through a mechanism designed to avoid income tax and NI.

The most common arrangement worked like this:

1. An employer or contractor's company sets up (or uses) a trust -- often called an Employee Benefit Trust (EBT) or employer-financed retirement benefit scheme.
2. The employer pays money into the trust.
3. The trust makes a "loan" to the employee or contractor. The loan is nominally repayable but in practice the parties intend it never to be repaid.
4. The employee receives cash but it is structured as a loan -- not salary -- so no PAYE or NI is deducted.

Promoters of these schemes marketed them throughout the late 1990s and 2000s, particularly to IT contractors, locum professionals, and high-earning employees in banking, media, and sport. Tens of thousands of people used them.

HMRC consistently challenged these schemes from the early 2000s, winning significant court victories. The Supreme Court's decision in Rangers FC v HMRC (2017) confirmed that payments made via EBTs are taxable employment income when made.

The Disguised Remuneration legislation

Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), introduced in 2011, directly charges income tax on disguised remuneration provided on or after 6 April 2011. This covers:

• Loans from third parties (including trusts).
• Quasi-loans.
• Arrangements conferring value without consideration.

For arrangements before 2011, HMRC relied on general employment income rules, supported by the Rangers decision.

The Loan Charge

The Loan Charge was introduced by Finance Act 2017 and applies to outstanding DR loans made between 6 April 1999 and 5 April 2019.

How the loan charge works

If a person had an outstanding DR loan on 5 April 2019 (the loan charge date), the outstanding balance is treated as employment income received on that date. The effect:

• The entire outstanding loan is taxed in the 2018/19 tax year as income.
• Income tax applies at marginal rates -- for large outstanding balances, much of this is at 45% (or 60% in the £100k-£125,140 personal allowance taper band).
• NI applies where the arrangement was employment-related.
• Interest accrues at HMRC's standard rate from 31 January 2020 on any unpaid tax.

The loan charge was controversial because it applied to years where the normal assessment time limits had expired -- effectively reopening old tax years through a single charge in 2018/19.

The 2019 Morse Review

Following significant Parliamentary pressure, the government commissioned an independent review by Sir Amyas Morse. The Morse Review reported in December 2019 and recommended several changes, which were largely accepted:

• Loans made before 9 December 2010 are excluded from the loan charge (the date the government publicly stated it would legislate against DR schemes).
• Where someone had a tax return open with HMRC (an open year) covering a DR loan, the loan charge does not apply to that year -- HMRC uses the open year instead.
• HMRC must offer time-to-pay arrangements for those facing large loan charge bills.

These changes reduced the scope of the loan charge but many people still faced significant liabilities.

Declaring the loan charge on Self Assessment

If you have an outstanding loan charge liability:

1. File the 2018/19 Self Assessment return (if not already done). The loan charge is declared on the 2018/19 SA return regardless of when HMRC issues notices.
2. Include the outstanding loan balance in the employment income section or the dedicated loan charge section of the return.
3. HMRC's SA form and guidance notes include specific boxes for the loan charge.
4. The tax becomes due by 31 January 2020 in theory -- but HMRC has offered time-to-pay (TTP) arrangements.

If you have not filed: HMRC has been issuing discovery assessments and charging penalties. Do not wait -- the penalty for deliberate non-filing of a return can reach 100% of the tax due.

HMRC settlement: the better option

HMRC's DR Settlement process allows individuals to settle their DR liability on a year-by-year basis rather than under the loan charge.

Why settlement can be better

The loan charge stacks all outstanding loans into a single year (2018/19). If you received loans of, say, £100,000 over 10 years (£10,000/year), the loan charge taxes £100,000 in 2018/19 -- a large portion at 40% or 45%.

Under settlement, HMRC works out the tax liability for each individual year you received DR loans. If you were a basic rate taxpayer in those years (salary of £25,000 + £10,000 DR loan = £35,000 total income), the settlement rate is 20% rather than 40% or 45%.

Settlement typically results in a lower total tax bill -- though this depends on your income levels in each year.

The settlement process

1. Contact HMRC's Disguised Remuneration team and register your interest in settlement.
2. Provide details of each scheme year: the loans received, the promoter, the trust used, and any income already declared.
3. HMRC issues a settlement computation showing the proposed tax liability for each year.
4. You can dispute or negotiate the figures.
5. Once agreed, HMRC issues a formal contract settlement -- a binding agreement paying the agreed amount.

HMRC expects settlement applicants to disclose fully. Concealing information can result in penalties.

Time to pay

For those who cannot pay the settlement amount immediately, HMRC offers time-to-pay (TTP) arrangements. These spread the payment over a period agreed with HMRC (typically up to 5-7 years for large amounts, subject to means testing). Interest accrues during the TTP period at HMRC's standard rate.

Follower Notices and Accelerated Payment Notices

HMRC uses Follower Notices (FNs) and Accelerated Payment Notices (APNs) to collect disputed tax upfront:

• Follower Notice: issued where HMRC has won a case in court on a similar scheme. Requires the recipient to amend their position or face a penalty.
• APN: requires payment of the disputed amount within 90 days, before any tribunal hearing. The money is held by HMRC pending the outcome of any appeal.

Penalties for ignoring a Follower Notice are 50% of the denied advantage if no reasonable ground exists. These are serious -- seek professional advice immediately if you receive one.

Where income tax was paid in the original years

Some scheme users paid income tax in the original years -- either because they declared income without understanding the full DR implications, or because HMRC opened enquiries and obtained partial payments.

In these cases:

• The tax already paid is credited against the settlement or loan charge liability.
• If HMRC has collected tax via a PAYE assessment from the employer, this may also reduce the employee's personal liability.
• Double taxation relief provisions apply where the same income has been taxed twice.

Outstanding schemes and obligations in 2026

Even in 2026, DR issues have not fully resolved for everyone. Common situations:

• Unsettled loan charge liabilities where the individual has not paid or agreed TTP.
• Open employer enquiries where PAYE assessments have not been agreed.
• Foreign trusts where the original loans were advanced offshore -- more complex cross-border issues.
• New schemes -- HMRC continues to challenge schemes using similar structures promoted after 2011.

If you are in any of these situations, take professional advice from a tax adviser specialising in DR. The cost of professional advice is almost always less than the penalties for inaction.

Key dates to remember

Sources

• HMRC: Disguised remuneration: settling your tax affairs
• HMRC: Loan Charge -- guidance and help
• Morse Review: Independent Loan Charge Review (December 2019)
• Legislation: Finance Act 2017, section 35 and Schedule 11