Following an independent review of the Loan Charge, HMRC has introduced a new settlement scheme that could significantly reduce outstanding liabilities for some taxpayers and provide a new opportunity to resolve long-running disguised remuneration disputes.

In response to the Independent Loan Charge Review, published at Budget 2025, HMRC has introduced a new Loan Charge Settlement Scheme that offers more favourable terms to many taxpayers with outstanding liabilities.

The review was commissioned by the Government in January 2025 following ongoing concerns about the fairness and impact of the Loan Charge on affected taxpayers. One of its key recommendations was the introduction of a new settlement opportunity for those with unresolved liabilities.

For individuals and employers who continue to have outstanding Loan Charge liabilities, the new scheme could represent a significant financial saving. In some cases, taxpayers may be able to reduce the amount payable by up to £70,000 compared with the liability that would otherwise have arisen under the original Loan Charge rules.

However, accepting a settlement offer is a significant decision. Understanding how HMRC has calculated the proposed liability, whether the figures are accurate, and what alternatives may be available remains essential before entering into a legally binding agreement.

For those still dealing with an outstanding liability, it is important to understand the new terms and consider whether settling now is the right option.

What is the Loan Charge?

The Loan Charge applies to certain disguised remuneration arrangements under which individuals received what were described as loans rather than conventional employment income.

These arrangements were often promoted on the basis that the amounts received as loans would not be subject to Income Tax or National Insurance. HMRC's position has consistently been that these arrangements did not achieve their intended tax outcome.

The Loan Charge was introduced to bring such loans within the charge to tax. While the legislation and HMRC’s approach have been the subject of significant legal and political debate over the years, some taxpayers continue to have unresolved liabilities arising from these arrangements.

What is the new settlement scheme?

The new Loan Charge Settlement Scheme provides eligible taxpayers with an alternative way of resolving their outstanding Loan Charge liabilities.

HMRC has confirmed that it will write to taxpayers it believes are eligible, setting out the loan details it has used and the amount it proposes should be paid under the new settlement terms.

Importantly, the calculation is designed to be more favourable than the original Loan Charge in a number of respects.

Under the new scheme, HMRC’s offer:

• uses a simplified calculation based on the tax and National Insurance that would have arisen in the years the disguised remuneration was received;

• provides a reduction for promoter fees;

• deducts a further £5,000 from the liability;

• excludes late payment interest and most penalties that would otherwise have been charged; and

• can reduce the amount payable by up to £70,000 compared with the liability arising under the original Loan Charge rules.

For some taxpayers, these changes could result in a substantial reduction in the amount ultimately payable.

Should you accept HMRC's settlement offer?

Not necessarily.

Receiving a settlement offer from HMRC does not mean that the figure should automatically be accepted without consideration. Taxpayers should carefully review the information used by HMRC and ensure that the calculations accurately reflect their circumstances.

This is particularly important where there are:

• complicated employment histories;

• multiple loan arrangements;

• historical settlements; or

• other outstanding disguised remuneration liabilities.

Taxpayers should also consider the wider implications of entering into a settlement agreement. While settling can provide certainty and bring HMRC's enquiries to an end, a settlement agreement is legally binding and will generally prevent further appeals or challenges, even if issues are identified later. Before accepting any offer, it is important to understand:

• how HMRC has calculated the proposed liability;

• whether all available reductions have been applied correctly;

• whether the figures accurately reflect the relevant arrangements; and

• whether alternative options may be available.

Given the long-term implications of entering into a binding settlement with HMRC, taking professional advice before making a decision is often worthwhile.

What if you cannot afford the settlement?

For some taxpayers, the principal issue may not be whether the liability is reduced, but how it can be paid.

HMRC has confirmed that payment by instalments can be available for up to five years under the new terms, with longer periods potentially available depending on the taxpayer's circumstances. However, interest may apply where payment is made over time.

This means that taxpayers who previously considered their Loan Charge liability unaffordable may now have a more realistic route to resolving the matter.

What if you have not yet received a letter?

HMRC's guidance confirms that eligible taxpayers can contact HMRC before receiving a settlement offer.

This may be relevant for individuals who know they have an outstanding Loan Charge liability but have not yet heard from HMRC.

There may also be circumstances where a taxpayer is unsure whether they are eligible for the new arrangements, particularly where other disguised remuneration liabilities remain unresolved.

Seeking advice at an early stage can help clarify the position before decisions need to be made.

What does the new settlement scheme mean for affected taxpayers?

The new Loan Charge Settlement Scheme represents a significant development for taxpayers who have been dealing with outstanding disguised remuneration liabilities for many years.

For some, the revised calculation could materially reduce the amount payable. For others, the ability to spread payments over a number of years may make settlement achievable for the first time.

How we can help

If you have received a Loan Charge settlement offer, we can help you understand the implications before you commit to an agreement.

Our Tax Disputes and Investigations team can:

• review HMRC's calculations and supporting information;

• identify any errors or issues with the proposed settlement;

• assess whether the new settlement terms are appropriate in your circumstances;

• advise on any other outstanding disguised remuneration liabilities; and

• support discussions with HMRC, including payment arrangements where required.

If you have received an HMRC Loan Charge settlement offer, or you have an outstanding disguised remuneration liability and are unsure what to do next, contact our Tax Disputes and Investigations team by filling in the form below to discuss your options before responding to HMRC.