The 2019 Loan Charge

What is the Loan Charge?

For many years HM Revenue & Customs (HMRC) has sought to counter the development of various ‘disguised remuneration’ (DR) tax avoidance schemes. These schemes seek to prevent salaries and bonuses being classified as taxable income by having payments made in a variety of different assets.

In the 2011 Budget the Coalition government introduced legislation to counter an expanding market for ‘loan schemes’. This type of scheme involved the recipient, either an employee or contractor providing their services for a client company, being given a loan which they would not be expected to pay back as an alternative to a simple monetary payment. The purpose of structuring payment this way was to seek to avoid this income being taxed.

In the 2016 Budget the Conservative government confirmed that new loan schemes had emerged which attempted to sidestep the 2011 legislation and that it would introduce new provisions to counter their use. This would include a new charge on loans paid through DR schemes which had not been taxed and were still outstanding on 5 April 2019. Statutory provision for the Loan Charge was included in the Finance (No.2) Act 2017 (specifically sections 34-37, with schedules 11 and 12), and the Finance Act 2018 (specifically sections 11-12, with schedules 1 and 2).

The Loan Charge took effect from 6 April 2019. When the Loan Charge was introduced, it was estimated that 50,000 individuals, and around 10,000 companies had used these schemes and would be potentially liable to pay it.

Why has the Loan Charge been controversial?

There have been many concerns about the design of the Loan Charge and about the financial difficulties facing taxpayers who have sought either to settle with HMRC for any tax and interest on the loans they received before the Loan Charge took effect, or to pay the Loan Charge.

In December 2019 the Conservative government announced a series of reforms to the Loan Charge. These changes included restricting the Loan Charge to loans taken out on or after 9 December 2010, and, not applying it to scheme users between 9 December 2010 and 5 April 2016 who had fully disclosed their schemes on their tax return and where HMRC failed to take action.

The reforms followed the recommendations of an independent review, commissioned by the government and was chaired by Sir Amyas Morse (now Lord Morse). Provisions to amend the Loan Charge were included in the Finance Act 2020 (specifically, sections 15-21 of the Act).

Initially it was estimated that the package of reforms in the 2016 Budget to discourage the use of DR schemes, including the Loan Charge, would raise £3.2 billion over five years. At the time of the 2022 Spring Statement the government revised these estimates. The total amount to be raised from the Budget 2016 package was estimated to be £3.4 billion over five years, while implementing the recommendations of the Independent Review was estimated to have cut the total yield by £620 million.

Concerns about the operation of the Loan Charge have continued to be raised. In the 2024 Autumn Budget the current government announced that it would “commission an independent review of the Loan Charge to help bring the matter to a close for those affected whilst ensuring fairness for all taxpayers.” Details of the review were published on 23 January 2025. The Exchequer Secretary James Murray announced that he had commissioned Ray McCann, former President of the Chartered Institute of Taxation, to conduct the review. Mr McCann is to complete the review by summer 2025, and the government has stated that it will publish its response by Autumn Budget 2025.

What is the scope of this briefing?

This briefing discusses the introduction of the Loan Charge, its consideration by Parliament, and the debate as to whether HMRC’s approach to applying the Charge has been fair or not.

This includes details on the major legal challenge to the viability of DR loan schemes (the ‘Rangers’ case in July 2017), HMRC’s actions to tackle the marketing of schemes by scheme promoters, concerns as to the retrospective nature of the Loan Charge, and the operation of HMRC’s settlement opportunity for scheme users who wish to avoid paying the Charge.

It concludes by looking at developments following the introduction of the Loan Charge in April 2019, and the series of changes the government announced in December 2019 in response to the Independent Review.

The first section of the briefing provides an overview of this long series of events.

Further reading

HMRC has published updated guidance for taxpayers, setting out the position for those who have settled, and those liable to pay the Loan Charge.

The Library briefing Tax avoidance and tax evasion provides a general overview of the approach taken by government and the tax authorities since 2010 to tackle tax avoidance.