CommentCoronavirus

Changes to the Loan Charge and opportunities for advisers

The widely reported criticisms of the loan charge – viewed as an unfair, opaque and discriminatory retrospective tax – culminated in the independent review of the charge which concluded in December 2019 which curtailed the application of the loan charge as originally enacted and therefore hailed as a “small but mighty victory” against the injustice of HMRC.

One of the most significant changes to come out of the review is the limitation of the period to which the loan charge is applied. The loan charge will not apply to disguised remuneration loans made before 9 December 2010 – irrespective of whether HMRC have protected their position by issuing determinations or opening an enquiry into the relevant tax year/s. This is significant as many businesses, employees and contractors may now face lower tax liability, or none whatsoever.

At the time of writing this we understand that there is increased pressure on Jesse Norman, Financial Secretary to the Treasury, to curtail the application of the loan charge not just to the aforementioned date in 2010, but to 2017 when the Rangers tax case was finally decided and there was a judicial ruling on such matters.

The loan charge review recommendations therefore have implications for both individuals and corporates alike. Accountants and other professional advisers should be aware of the financial impact as well as some of the potential opportunities available, set out below: 

  • Employers, employees and contractors who have not yet taken any action (i.e. they have not settled with HMRC in relation to their use of “disguised remuneration” planning) need to review the cost of the loan charge versus what a settlement with HMRC would look like – as the overall liability may not necessarily be the same.  
  • Employers, employees and contractors who have already settled with HMRC may well have overpaid. Those impacted would have already settled with HMRC in advance of the loan charge coming into force (in respect of the underlying disguised remuneration arrangement) and paid tax on a “voluntary restitution” basis i.e. paid tax for years where HMRC had not protected their position with a determination or enquiry. These taxpayers will receive a refund of the voluntary restitution element of the settlement. It is understood that HMRC do not intend to re-open the original settlement deed and instead enter into a separate agreement with the employer/employee/contractor to facilitate repayment of the overpaid tax. HMRC will be contacting those affected over the Summer once Royal Assent gives effect to the loan charge legislation.
  • For loans made between 9 December 2010 and 5 April 2016, unprotected years (i.e. those years for which HMRC did not open an enquiry or issues a protective assessment/determination) will remain subject to the loan charge unless the individual in receipt of the loan can demonstrate that they made a “reasonable disclosure” of the scheme usage to HMRC.  Meeting the “reasonable disclosure” criteria will not be easy, and advice may need to be taken.
  • Where employers, employees or contractors have already settled with HMRC, but in doing so abandoned potential technical arguments (for example, on “discovery”) on the basis that the loan charge would collect the tax on the loan in any case, there may be an argument that such settlements should be re-opened where the loan charge no longer applies to any of the years to give those parties an opportunity to now advance these arguments. 

Finally, it is worth noting that simply paying the updated loan charge does not mean a dispute with the Revenue for the years in which loans were made has been resolved and HMRC has indicated it plans to take firm action to conclude these enquiries. Once the dust settles following the loan charge review, taxpayers and their advisers should be prepared for HMRC to bare its teeth once more.  


Sarah Stenton and Lisa Vanderheide are Tax Directors at Stewarts in the tax litigations and investigations practice 

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