Loan charge

If you have previously been paid for your work in the form of a loan that was never intended to be repaid, you are liable to pay a loan charge.

The loan charge is a single retrospective tax of 45% on all employee payments that were disguised as loans. When first introduced, it covered all payments from 1999 to 5 April 2019.  

The situation may not necessarily be your fault. Loan remuneration practices have always been technically legal, so you might have been mis-sold the schemes as advised by your lawyer or accountant at the time. 

Loan remunerations are considered a form of tax avoidance. This is because the loans are not expected to be repaid and they sidestep Income Tax and National Insurance contributions.

Critics of the loan charge have claimed a single lump sum is a harsh penalty for something that was previously allowed. But fear not – improvements to the loan charge were enacted in the Finance Act 2020: 

• Only loans from after 9 December 2010 are now covered
• You won’t be charged if you disclosed the scheme on your tax return and HMRC failed to act
• Your bill can be split over three years 

Who Pays the Loan Charge?

If your employer set up the scheme, then the tax liabilities will fall on them, not you. However, if the employer no longer exists or is offshore, you are liable to pay.

If you have used a loan remuneration scheme, here are your options:

• Repay the loan
• Agree to settle with HMRC
• Pay the loan charge

Anybody who wants to settle with HMRC can get in touch with the required information. 

Feeling the pinch? Payment plans are available for those on salaries below £50,270 and/or in difficult circumstances, so don’t worry if your financial situation has changed.