Loan Charge and Disguised Remuneration Guide 2026/27

What Is the Loan Charge?

The loan charge is a tax charge introduced to close down disguised remuneration schemes, most commonly arrangements where a contractor was paid through an umbrella company or trust that routed most of their income back to them as a "loan" instead of salary. Because these loans were, in substance, never intended to be repaid, HMRC treats the outstanding balance as taxable employment income, collecting Income Tax (and in many cases National Insurance) on the amount still owed.

Who Is Affected

• Contractors and freelancers paid through umbrella companies or trusts that made disguised remuneration loans
• Anyone with an outstanding loan from such a scheme, made after 6 April 1999, that had not been repaid, written off and taxed, or otherwise settled
• Some employees paid through similar arrangements, though the schemes were most common among contractors working through intermediaries
• People who may not have known the full nature of the scheme they were enrolled in, often having joined on the recommendation of an agency, umbrella provider, or scheme promoter

Changes After the Independent Review

The original loan charge design, reaching back to loans made in 1999, was widely criticised as retrospective and disproportionate. An independent review (the Morse Review) reported in December 2019, and the government accepted most of its recommendations, resulting in:

• Loans made before 9 December 2010 excluded from the charge in most circumstances
• The charge could be spread evenly across three tax years instead of falling entirely in one year, reducing the risk of being pushed into a much higher tax bracket
• Removal of the charge for years where the scheme use had been fully disclosed to HMRC on a tax return and HMRC had not challenged it within its normal enquiry window
• A refund process for people who had already settled on the original, harsher terms before the review

Settlement and Payment Options

Rather than paying the loan charge itself, many people affected choose to settle directly with HMRC, agreeing the tax due on the underlying loans under a settlement opportunity. This can sometimes produce a lower overall liability than the loan charge, and typically allows the loan to be treated as written off without a further tax charge arising later if the scheme provider eventually writes it off itself.

For those who cannot pay in full, HMRC offers Time to Pay arrangements based on an individual's income and assets, and has stated it will not force the sale of a main home to collect a loan charge debt. Given the complexity and scale of the amounts often involved, independent professional advice is strongly recommended before agreeing any settlement or payment plan.

Worked Example

David worked as a contractor between 2012 and 2016 through an umbrella scheme that paid most of his income as a loan from an offshore trust, totalling £180,000 outstanding. Because the loans were made after 9 December 2010, they remain within scope of the loan charge.

Rather than have the full £180,000 taxed in a single year, which would create a very high marginal tax rate, David elects to spread the charge over three tax years, adding £60,000 a year to his taxable income. He also contacts HMRC to discuss a settlement, which in his case results in a lower total liability than the spread loan charge, and agrees a Time to Pay arrangement to pay it over an extended period.

Common Pitfalls

• Ignoring HMRC correspondence. Not responding to loan charge letters or reminders can close off settlement options and lead to enforcement action.
• Assuming a pre-2010 loan is automatically excluded. The exclusion has specific conditions attached; each case needs individual checking rather than assuming the date alone settles the matter.
• Not comparing settlement against the loan charge. In some cases settlement produces a lower liability than the spread loan charge, but this is not automatic and needs a proper comparison.
• Going it alone on a complex case. Given the sums involved and the interaction with Self Assessment, National Insurance and Time to Pay, independent advice usually pays for itself.
• Missing the three-year spreading election deadline. The election to spread the charge over three years had to be made by a specific deadline for the relevant year — check current HMRC guidance if you have not yet dealt with an outstanding liability.