Guidance

Disguised remuneration: guidance following the outcome of the independent loan charge review

Updated 4 March 2021

Introduction

In December 2019, the government announced that it would make a package of changes to the loan charge, a measure designed to tackle a form of tax avoidance known as disguised remuneration.

The government made these changes in response to Sir Amyas Morse’s independent review of the loan charge policy and its implementation.

This guidance sets out the key changes to the loan charge and what they mean for different customer groups. Legislation has been enacted to make these changes, and further guidance has been published.

The key changes to the loan charge are:

• the loan charge will apply only to outstanding loans made on, or after, 9 December 2010
• the loan charge will not apply to outstanding loans made in any tax years before 6 April 2016 where a reasonable disclosure of the use of the tax avoidance scheme was made to HMRC and HMRC did not take action (for example, opening an enquiry into an Income Tax return)
• the option for individuals to elect to spread the amount of their outstanding loan balance (as at 5 April 2019, recalculated in line with the above changes) evenly across 3 tax years: 2018 to 2019, 2019 to 2020 and 2020 to 2021 - the option was added to give greater flexibility on when the outstanding loan balance is subject to tax and may mean that the loan balance is not subject to higher rates of tax

• HMRC will refund certain voluntary payments (known as ‘voluntary restitution’) already made to prevent the loan charge arising and included in a settlement agreement reached since March 2016 (when the loan charge was announced) for any tax years where:

  • the loan charge no longer applies (loans made before 9 December 2010)
  • loans were made before 6 April 2016, and a reasonable disclosure of the use of the tax avoidance scheme use was made to HMRC and HMRC did not take action (for example, opening an enquiry into an Income Tax return)

Find more information on voluntary restitution refunds.

The package also includes a number of changes that will give customers additional flexibility over the way they pay:

• if you do not have disposable assets and your income is less than £50,000 in the 2017 to 2018 tax year, HMRC will agree time to pay arrangements for a minimum of 5 years
• if your income is less than £30,000 in the 2017 to 2018 tax year, we’ll agree a minimum of 7 years
• if your income is more than £50,000 in the 2017 to 2018 tax year, or you need longer to pay, you’ll need to provide HMRC with detailed financial information
• there is no maximum time limit for a time to pay arrangement - if you need to agree a payment arrangement, to let us know, phone us on: 0300 322 9494
• in line with existing practice, if you need time to pay, you’ll pay no more than 50% of your disposable income, unless you have a very high level of disposable income - the amount you pay into an arrangement each month will depend on your own individual circumstances

Self Assessment tax return

Customers had the option to submit their 2018 to 2019 return on or before 31 January 2020, giving a best estimate of the tax due, or file on or before 30 September 2020. HMRC agreed to waive any penalties for late filing and late payment for the 2018 to 2019 tax return if it was filed, and tax paid or a time to pay arrangement agreed on or before 30 September 2020.

Late payment interest will not be payable on any outstanding tax for the period between and including 1 February 2020 to 30 September 2020, as long as a complete and accurate return was filed, and tax paid or an arrangement made with HMRC to do so, on or before 30 September 2020.

Customers who are subject to the loan charge and have not filed their tax return, or agreed a settlement with HMRC, should submit a complete and accurate Self Assessment tax return for the 2018 to 2019 tax year as soon as possible. The return should include full and accurate details of their outstanding disguised remuneration loans included in the relevant boxes as taxable income. As the 2018 to 2019 return will now be late, customers will be liable for late filing and payment penalties and interest on any amount owed. This will be charged from 1 February 2020.

Open enquiries

Paying the loan charge does not resolve the underlying tax dispute with HMRC for the years in which loans were made. Tax years that are subject to an open enquiry or assessment will still need to be resolved, either by way of settlement with HMRC or through litigation.

Accelerated payment notices

The changes to the loan charge do not affect accelerated payment notices which relate to the underlying tax dispute with HMRC for the years in which loans were made. Those who received an accelerated payment notice will need to pay the amount due.

Inheritance Tax

The changes made to the loan charge following the independent review will have no effect on the treatment of inheritance tax. You can check the existing guidance on Inheritance Tax for more information.

If you need more help

HMRC recognises that some of our customers may need additional support.

Our teams are available if you need help to understand what the changes to the loan charge mean for you.

If there is anything about your health or personal circumstances that may make it difficult for you to deal with us, let us know so that we can help you in the most appropriate way. You can call us on 0300 322 9494 or email: ca.loancharge@hmrc.gov.uk.

The loan charge helpline opening hours are Monday to Friday 8am to 4pm, excluding bank holidays.

Detailed guidance by customer group

Individuals

I am an individual who has settled the tax due from my use of disguised remuneration or am paying it by instalments.

I am an individual who has not agreed a settlement and is subject to the loan charge.

Employers

I am an employer who has paid the loan charge.

I am an employer who has settled their disguised remuneration liabilities in full or is paying by instalments (and have not had to pay the loan charge).

I am an employer who has not paid the loan charge or agreed a settlement.

Employees

I am an employee whose employer has settled the tax due from my use of disguised remuneration.

I am an employee whose employer has not settled the tax due from my use of disguised remuneration.

I am an employee who settled the tax due from my use of disguised remuneration on behalf of my employer.

Individuals who have settled the amount due from their use of disguised remuneration and have paid in full or are paying it by instalments

If you reached settlement with us before the changes to the loan charge were announced, you may be due a refund or waiver of some, or all of the amount included in settlement.

HMRC will refund or waive certain voluntary payments (known as ‘voluntary restitution’) included in a settlement agreement reached since March 2016 (when the loan charge was announced) to prevent the loan charge from arising for any tax years where:

• the loan charge no longer applies (loans made before 9 December 2010)
• loans were made before 6 April 2016, the avoidance scheme use was disclosed to HMRC and HMRC did not take action (for example, opening an enquiry into an Income Tax return)

Changes to the loan charge legislation have now been enacted by Parliament. Find more information on voluntary restitution refunds.

If you reached settlement with us after the changes to the loan charge were announced, you do not need to do anything else in relation to the loan charge.

If you had other taxable income in the 2018 to 2019 tax year, you should have filed a complete and accurate tax return on or before 30 September 2020.

What you need to do

Check your settlement paperwork. If voluntary restitution payments were included in your settlement, these will usually be identified on the agreement as amounts where no interest has been charged.

We have contacted those we think are able to apply for a refund or waiver, to tell you how to do this and what information we need. If you’ve not heard from us, and you think you’re eligible for a refund or waiver, contact us by phone on: 0300 322 9494 or email: ca.loancharge@hmrc.gov.uk.

If you’re paying by instalments you should continue to make those payments. You can apply for appropriate voluntary restitution instalments to be waived through the repayment scheme. If you believe that you’ll have paid all you owe under the new loan charge rules before your instalment plan finishes, contact HMRC before stopping any payments.

If you received taxable income in the 2018 to 2019 tax year, and you haven’t filed a tax return, you should do so now. If you file a 2018 to 2019 return now you’ll be liable to late filing and payment penalties and interest from 1 February 2020.

Individuals who have not agreed a settlement and are subject to the loan charge

What you need to do

If we have asked you to submit a 2018 to 2019 Self Assessment tax return, you should have completed and submitted it on or before 30 September 2020, reflecting the loan charge rules accurately on your return.

If we have not asked you to submit a 2018 to 2019 Self Assessment tax return, you should have notified us of your liability to the loan charge. If you’ve not done so you should as soon as possible. As the 2018 to 2019 return will now be late, you’ll be liable for late filing and payment penalties and interest on any amount owed, charged from 1 February 2020.

You can use the Government Gateway portal, which can take up to 20 working days to register. Help and support for Self Assessment is available.

If you submitted or amended your return on or before 30 September 2020 with complete and accurate loan balance information included as taxable income, HMRC will not charge any inaccuracy penalties in relation to the loan charge.

If you made an election to spread your outstanding loan balance (as at 5 April 2019) evenly across 3 tax years (2018 to 2019, 2019 to 2020 and 2020 to 2021) you should have entered one third of your outstanding loan balance in your 2018 to 2019 tax return.

If you did not make an election on or before 30 September 2020, you may be able to make a late election. There are limited circumstances where we can accept a late election. The Statement of Practice sets out the criteria that we’ll consider for late elections and the process for making a late election.

You can find out more about making an election to spread your outstanding loan balance.

Choosing to spread your income over 3 tax years will bring you within the Self Assessment payments on account rules.

Late payment interest

Late payment interest will not be payable on any outstanding tax for the period between and including 1 February 2020 to 30 September 2020, as long as a complete and accurate tax return was filed, and tax paid or an arrangement made with HMRC to do so, on or before 30 September 2020.

Payments on account for 2019 to 2020

Submitting your 2018 to 2019 tax return will automatically generate a liability for 2 payments on account of your 2019 to 2020 tax liability. Each of these is set at 50% of the liability established by the 2018 to 2019 return and were due for payment on 31 January 2020 and 31 July 2020. If you did not elect to spread the loan charge, you can ask for your 2019 to 2020 payments on account to be reduced.

If you submitted your 2018 to 2019 tax return, and paid any liabilities due (or entered into a time to pay arrangement), on or before 30 September 2020, you’ll not be charged interest on the first payment on account for 2019 to 2020 if you pay it in full on or before 31 January 2021.

If you enter into a time to pay arrangement to pay the first payment on account for 2019 to 2020 on or before 31 January 2021, any tax outstanding at 31 January 2021 will be charged interest from 1 February 2021.

The second payment on account for the 2019 to 2020 tax year was due to be paid on or before 31 July 2020. If payment is made for this on or before 31 January 2021, no late payment interest will be charged by virtue of the national coronavirus (COVID-19) deferral . Any tax in respect of the second payment on account which is still outstanding at 31 January 2021 will be charged interest from 1 February 2021.

Delaying the 2019 to 2020 payments on account could leave you with a large sum to pay at 31 January 2021. This is because the first payment on account for the 2020 to 2021 tax year is also due on or before 31 January 2021. You can make payments towards this liability at any time and in any amounts to reduce the sum due 31 January 2021.

If you did not file or amend your return and make full payment, or payment arrangements, on or before 30 September 2020

If you’ve not yet submitted your 2018 to 2019 return you should do so now and will need to include any disguised remuneration loans made on, or after, 9 December 2010 that were still outstanding on 5 April 2019.

You do not need to include:

• any loans made before 9 December 2010

• any loans made before 6 April 2016 where you made a reasonable disclosure of your use of a disguised remuneration avoidance scheme to HMRC, and HMRC did not take action (for example, opening an enquiry into an Income Tax return)

If you’re worried about paying, you can agree a time to pay arrangement with us.

As the 2018 to 2019 return will now be late, you’ll be liable for late filing and payment penalties and interest on any amount owed, charged from 1 February 2020. HMRC will consider appeals against late filing and payment penalties on a case by case basis for returns or amendments sent after 30 September 2020. Decisions on if to charge inaccuracy penalties will be made on a case by case basis.

If you’ve completed and submitted your 2018 to 2019 Self Assessment tax return

The change to the filing date for those subject to the loan charge does not affect the usual rules which allow anyone to amend their 2018 to 2019 tax return on or before 31 January 2021.

Payment options

If you do not have disposable assets and your income was less than £50,000 in the 2017 to 2018 tax year, HMRC will agree time to pay arrangements for a minimum of 5 years, if your income was less than £30,000, we’ll agree a minimum of 7 years. If your income was more than £50,000 in the 2017 to 2018 tax year or you need longer than that to pay, then we’ll ask for income and expenditure information, so we can arrange a payment plan that is manageable and for the right length of time.

If you’re in this position, then you’ll not pay more than 50% of your disposable income, unless you have a very high level of disposable income. The amount you pay into an arrangement each month will depend on your own individual circumstances. There is no maximum time limit for a time to pay arrangement.

Further guidance on time to pay has now been published.

How to contact HMRC

If you have any questions phone the loan charge helpline on 0300 322 9494.

Employers who have paid the loan charge

What you need to do

Look carefully at the changes to the loan charge rules and if they have an impact on your loan charge liability.

The loan charge will not apply to:

• any loans made before 9 December 2010
• any loans made before 6 April 2016 where a reasonable disclosure of the use of the disguised remuneration avoidance scheme was made to HMRC and the HMRC did not take action (for example, issuing a determination)

If the changes mean that the amount of outstanding disguised remuneration loan balance previously reported for any of your employees or former employees needs to be amended, you need to report the amended figures to us.

Your employees may have chosen to elect to spread their outstanding loan balance equally over 3 tax years. If they did this, they should have provided you with a copy of their ‘election’. If you’re provided with a copy of an election from any employee or former employee, the outstanding loan balance for that employee or former employee should reflect the election, and be split evenly across the 3 tax years 2018 to 2019, 2019 to 2020 and 2020 to 2021.

You may wish to contact your employees or former employees to establish if any changes are required to the amounts previously reported and if they have made an election to spread their loan balance.

How to report any changes

If you need to make any changes you’ll need to amend the amount of outstanding disguised remuneration loan balance you reported on your PAYE real time information (RTI) submissions in respect of the 2018 to 2019 tax year. More information about how to do this is in the Employers section of the ‘Report and account for your disguised remuneration loan charge’ guidance.

How to contact HMRC

If you have any questions get in touch with your HMRC contact or phone the loan charge helpline on 0300 322 9494.

Employers who settled their disguised remuneration liabilities in full or are paying by instalments – and have not had to pay the loan charge

As you reached settlement with us before the changes to the loan charge were announced, you may receive a refund of some or all of the amounts paid.

HMRC will refund certain voluntary payments (known as ‘voluntary restitution’) made to prevent the loan charge arising included in a settlement agreement reached since March 2016 (when the loan charge was announced) for any tax years where:

• the loan charge no longer applies (loans made before 9 December 2010)
• loans were made before 6 April 2016 and a reasonable disclosure of the disguised remuneration tax avoidance scheme use was made to HMRC and the HMRC did not take action (for example, issuing a determination)

The loan charge legislation has now been enacted by Parliament. Find more information on voluntary restitution refunds.

What you need to do

Check your settlement paperwork. If you’ve made voluntary restitution payments, these will usually be identified as amounts where no interest has been charged.

We have contacted those who we think may be able to get a refund or waiver of voluntary restitution payments to invite them to apply.

If you’re paying by instalments you should continue to make those payments. You can also apply for appropriate voluntary restitution instalments to be waived through the repayment scheme. If you believe that you’ll have paid all you owe under the new loan charge rules before your instalment plan finishes, contact HMRC before stopping any payments.

Employers who have not paid the loan charge or agreed a settlement

What you need to do

Report and pay the loan charge for loans made on or after 9 December 2010.

Do not include any loans made before 6 April 2016 where the avoidance scheme use was disclosed to HMRC and HMRC did not take action (for example, issuing a determination).

Your employees may have chosen to elect to spread their outstanding loan balance evenly over 3 tax years.

If they did this, they will need to provide you with a copy of their ‘election’. If you’re provided with a copy of an election from any employee or former employee, the outstanding loan balance for that employee or former employee should reflect the election, and be split evenly across the 3 tax years 2018 to 2019, 2019 to 2020 and 2020 to 2021.

You may wish to contact your employees or former employees to establish the amount of their outstanding disguised remuneration loans and if they have made an election to spread their loan balance.

How to report any changes

You must report any outstanding disguised remuneration loans for each employee and former employee on PAYE real time information (RTI) submissions for the relevant tax years.

You must also pay any loan charge amount you owe.

More information on how to do this is in the Employers section of the ‘Report and account for your disguised remuneration loan charge’ guidance.

You’ll have to pay late payment interest because you missed the statutory deadline for payment, which was 22 April 2019. Interest will continue to accrue until you pay.

How to contact HMRC

If you have any questions speak to your HMRC contact or phone the loan charge helpline on 0300 322 9494.

Employees whose employer settled their disguised remuneration use

As your employer reached settlement with us, you do not have to declare the loan charge on your 2018 to 2019 Self Assessment tax return.

If you received taxable income in the 2018 to 2019 tax year, you should have filed a complete and accurate tax return on or before 30 September 2020. If this applies to you, and you’ve not filed a tax return, you should do so now. If you file a 2018 to 2019 return now you’ll be liable to late filing and payment penalties and interest from 1 February 2020.

Employees whose employer did not settle their disguised remuneration use

The changes to the loan charge may affect the amount of loan charge tax that your employer has to pay. These changes may also affect what loans you need to declare on your Self Assessment tax return.

What you need to do

If we have asked you to submit a 2018 to 2019 Self Assessment tax return, you should have completed and submitted it on or before 30 September 2020. Any 2018 to 2019 returns submitted now will be late and you may be liable to interest and penalties.

If we haven’t asked you to submit a 2018 to 2019 Self Assessment tax return, you should have notified us of your liability to the loan charge. If you’ve not done so you should as soon as possible. You can use the Government Gateway portal, which can take up to 20 working days to register. Help and support for Self Assessment is available.

If you submitted your return on or before 30 September 2020, HMRC will not charge any inaccuracy penalties in relation to the loan charge.

If you made an election to spread your outstanding loan balance (as at 5 April 2019) evenly across 3 tax years (2018 to 2019, 2019 to 2020 and 2020 to 2021) you should have entered one third of your outstanding loan balance in your 2018 to 2019 tax return.

If you did not make an election on or before 30 September 2020, you may be able to make a late election. There are limited circumstances where we can accept a late election.

The Statement of Practice sets out the criteria that we’ll consider for late elections and the process for making a late election. You can find out more about making an election to spread your outstanding loan balance.

Choosing to spread your outstanding loan balance over 3 tax years will bring you within the Self Assessment payments on account rules.

Late payment interest will not be payable on any outstanding tax for the period between and including 1 February 2020 to 30 September 2020 as long as a complete and accurate tax return was filed, and tax paid or an arrangement made with HMRC to do so, on or before 30 September 2020.

Payments on account for 2019 to 2020

Sending your 2018 to 2019 tax return will automatically generate a liability for 2 payments on account of your 2019 to 2020 tax liability. Each of these is set at 50% of the liability established by the 2018 to 2019 return and were due for payment on 31 January 2020 and 31 July 2020. If you did not elect to spread the loan charge, you can ask for your 2019 to 2020 payments on account to be reduced.

If you submitted your 2018 to 2019 tax return and paid any liabilities due (or entered into a time to pay arrangement), on or before 30 September 2020, you’ll not be charged interest on the first payment on account for 2019 to 2020 if you pay it in full on or before 31 January 2021.

If you enter into a time to pay arrangement to pay the first payment on account for 2019 to 2020 on or before 31 January 2021, any tax outstanding at 31 January 2021 will be charged interest from 1 February 2021.

The second payment on account for the 2019 to 2020 tax year was due to be paid on 31 July 2020. If payment is made for this on or before 31 January 2021, no late payment interest will be charged by virtue of the national coronavirus-deferral. Any tax in respect of the second payment on account which is still outstanding at 31 January 2021 will be charged interest from 1 February 2021.

Delaying the 2019 to 2020 payments on account could leave you with a large sum to pay at 31 January 2021. This is because the first payment on account for the 2020 to 2021 tax year is also due on 31 January 2021. You can make payments towards this liability at any time and in any amounts to reduce the sum becoming due 31 January 2021.

If you did not file or amend your return or make payment, or payment arrangements on or before 30 September 2020

If you’ve not yet submitted your 2018 to 2019 tax return you should do so now and you’ll need to include any loans made on, or after, 9 December 2010 that were outstanding on 5 April 2019

You do not need to include:

• any loans made before 9 December 2010
• any loans made before 6 April 2016 where a reasonable disclosure of your use of a disguised remuneration tax avoidance scheme was made to HMRC, and HMRC did not take action (for example, opening an enquiry into an Income Tax return)

If you’re worried about paying, you can agree a time to pay arrangement with us.

As the 2018 to 2019 return will now be late, you’ll be liable for late filing and payment penalties and interest on any amount owed, charged from 1 February 2020. HMRC will consider appeals against late filing and payment penalties on a case by case basis for returns or amendments sent after 30 September 2020. Decisions on if to charge inaccuracy penalties will be made on a case by case basis.

If you’ve already completed your 2018 to 2019 Self Assessment tax return

The change to the filing date for those subject to the loan charge does not affect the usual rules which allow anyone to amend their 2018 to 2019 tax return on or before 31 January 2021.

Payment options

If you do not have disposable assets and your income was less than £50,000 in the 2017 to 2018 tax year, HMRC will agree time to pay arrangements for a minimum of 5 years, if your income was less than £30,000, we’ll agree a minimum of 7 years.

If your income was more than £50,000 in the 2017 to 2018 tax year or you need longer than that to pay, then we’ll ask for income and expenditure information, so we can arrange a payment plan that is manageable and for the right length of time.

If you’re in this position, then you’ll not pay more than 50% of your disposable income, unless you have a very high level of disposable income. The amount you pay into an arrangement each month will depend on your own individual circumstances. There is no maximum time limit for a time to pay.

Find further information on time to pay.

How to contact HMRC

If you have any questions phone the loan charge helpline on 0300 322 9494.

Employees who settled their disguised remuneration scheme tax liabilities on behalf of their employer

As you reached settlement with us before the changes to the loan charge were announced, you’ll not have to declare loan charge on your 2018 to 2019 Self Assessment tax return.

Further information

How do I know if I am an individual, employer or employee for the purposes of this guidance

For the purposes of this guidance a reference to individuals broadly means contractors who provide their services to clients that do not directly employ them. However, it will depend on their particular circumstances and the scheme used.

A reference to employers broadly means a corporate entity due to operate Pay As You Earn (PAYE) in respect of the loan charge.

A reference to employees broadly means people who are not contractors and are paid through a disguised remuneration scheme their employer used.

How do I know if I’ve made a reasonable disclosure

For there to have been a reasonable disclosure for the purposes of the loan charge, the information provided must have been sufficient that HMRC was able to:

• identify the loan
• identify who the loan was made to
• identify the nature of the arrangement
• conclude that an Income Tax liability arose in relation to the loan

For there to have been a reasonable disclosure, the above information can be given in a Corporation Tax Self Assessment return or an Income Tax Self Assessment return, but not a mixture of both. The information must have been provided on the relevant tax return or, where appropriate, in associated documents.

Where a loan arrangement was disclosed in more than one year, a disclosure will be considered reasonable if sufficient information was provided within all relevant returns when they’re considered together.

Where more than one loan was made, the test of if there was a reasonable disclosure needs to be considered for each loan.

Find further guidance on the definition of disclosure.

How do I know if HMRC took action to recover the tax

HMRC took action if, on or before 6 April 2019, we took one or more steps which allowed us to recover Income Tax due from a person. For example, we may have opened an enquiry into a person’s Income Tax position or issued an assessment or determination for Income Tax due.

We do not have to have taken every necessary step to allow us to recover tax. For example, we do not have to have closed an enquiry or resolved an appeal on or before 6 April 2019.