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The loan charge is a law that allows HMRC to recover unpaid taxes from people who have used a tax evasion scheme involving loans.
How this scheme worked: a contractor would work with a client through a limited company, but instead of receiving a salary or dividends (and paying tax), they received a “loan” – but one that they were not supposed to pay back. It was basically a disguised salary.
Because borrowing money is not the same as earning money, they did not need to pay tax. However, HMRC has recently caught on and is trying to recover this unpaid tax through something called “the loan charge”.
If you are caught by it, your best option is to speak to HMRC, so you can agree to a payment plan and avoid any additional costs.
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