Policy paper

How HMRC will implement the loan charge settlement scheme

Published 7 September 2026

Overview

This page provides agents and customers with information about how HMRC is implementing the loan charge settlement scheme, for both individuals and employers. You can also read our guidance about the loan charge settlement scheme and its key features to find out:

• who is eligible for the scheme
• what the settlement scheme covers, including Inheritance Tax liabilities
• how to accept the settlement offer
• what to do if you need to pay by instalments

At Budget 2025 the government published its response to the independent review of the loan charge. To deliver this, it has introduced legislation in sections 25 to 27 of Finance Act 2026 and The Employment and Trading Income etc. (Loan Charge Settlement Scheme) Regulations 2026.

It is expected that for nearly all customers it will be significantly cheaper to settle under the new settlement scheme, and for some there will be nothing to pay.

When settlement offers will be made and how long they’ll be available

We will write to eligible customers with formal settlement offers based on the new terms. We have started doing this and we are prioritising customers who contact us to say that they want to agree a settlement. We may also ask some customers for additional information to help us calculate their settlement amount, before sending them a settlement offer.

The settlement scheme legislation sets out how long customers will have to accept a settlement offer. Everyone will have at least 90 days to accept their offer.

In practice, most customers will have longer than 90 days to accept a settlement offer under the terms. Every settlement offer we send will clearly state how long customers have to accept it.

Once we have sent a settlement offer to the customer, we will attempt to contact them again before the offer expires, if we have not had a response.

What determines how long customers will have to settle

Most customers:

• still have an open enquiry into their tax position for the loan charge
• have an ongoing appeal in relation to their tax position for the loan charge that they have not yet notified to the independent tax tribunal (First-tier Tribunal)

These customers will be able to accept a settlement offer until the earlier of when:

• their loan charge liability becomes final
• they notify their appeal to the First-tier Tribunal

This will always be more than 90 days from the date of the original settlement offer for these customers.

A smaller number of customers will have 90 days to accept their settlement offer and after this point, they will not be able to settle under the terms. This will apply where:

• a customer’s loan charge liability is already final but they have not paid in full
• they have already notified their appeal to the First-tier Tribunal, and that litigation will finalise the loan charge liability
• a customer has already agreed a contract settlement with HMRC for their loan charge liability

A loan charge liability will be final where we have issued a formal decision in relation to that liability, for example an assessment, and it was not appealed within statutory timeframes or it was appealed but the appeal has been resolved.

Further information on how long customers will have to accept their offer is provided in the ‘settlement process for different situations’ section of this guidance.

We will make settlement offers to both individuals, and employers that still exist, where they are eligible for the settlement scheme.

Settling with employers

Some individuals may have had an employer who was required to operate Pay as You Earn (PAYE) and account for the tax and National Insurance contributions due as a result of the loan charge. This will be where the employer was based in the UK and still in existence on 5 April 2019.

For disguised remuneration arrangements, an employer may be:

• an umbrella company who usually employed many individuals who contracted their services to other businesses
• an owner managed business who usually paid certain employees and directors through the arrangements
• a personal service company set up by an individual who contracted their services to other businesses, for the purpose of the arrangements

Where an employer was required to operate PAYE for the loan charge, we will try to collect the tax and National Insurance contributions from the employer first, if they still exist, before considering whether we can collect it from the individual.

While we will try to collect from the employer in the first instance, we want everyone eligible to settle under the scheme to understand their options at every stage. Because of this we will be sending an offer to individuals at the same time as their employer. An individual’s offer to settle will remain open while we try to collect the tax and National Insurance contributions from their employer, and we will amend it to reflect any amounts the employer pays. 

This approach means that individuals can still agree a settlement immediately if the settlement amount is £0, or if they want closure to their disguised remuneration liabilities rather than wait to see if we can collect the tax and National Insurance contributions from their employer.

If an employer accepts their settlement offer

If we can settle with an employer, we will contact the individual to let them know. We will withdraw the individual’s original settlement offer and send them either:

• a new settlement offer, which will be reduced by the amount settled by the employer — we will need to do this if they still have a loan charge amount to settle, for example with a different employer
• confirmation that their loan charge liability has been fully settled by the employer

If an employer does not settle

It is expected that some umbrella companies and personal service companies will have limited assets and means to meet their disguised remuneration liabilities, with many already in insolvency. In some cases, we will know that we will not be able to collect any of the tax and National Insurance contributions from the insolvent employer. 

If it appears the employer may be able to pay but they do not accept the settlement offer within 90 days, we will pursue formal compliance action and attempt to collect the full amount of tax and National Insurance contributions that is due for the loan charge from them. 

If we’re unable to collect the tax and National Insurance contributions from the employer, either because they are insolvent or following formal compliance action, we will contact the individual to:

• let them know we could not collect the tax and National Insurance contributions for the loan charge from their employer
• ask if they want to accept their settlement offer

When we do this, we may need to withdraw an individual’s original settlement offer and send them a new one, to give them a new period:

• to settle
• for action to be taken to resolve their Inheritance Tax position

This approach means that individuals will know, before they have to decide whether to take up the settlement offer, if:

• we have been able to collect the tax and National Insurance contributions for the loan charge from their employer
• they are likely to be required to pay the tax and National Insurance contributions for the loan charge if they do not settle

Personal service companies

An exception to the approach outlined in this section is where the employer is an individual’s personal service company, which has no other employees. In this situation, where the individual is the sole director of the employer company, we will ask the individual to settle at the point their employer appeals to the First-tier Tribunal and before we are able to attempt to collect the tax and National Insurance contributions for the loan charge from the company. This is because the individual controls the company and will know whether it can pay the tax due.

Calculating the settlement offer for individuals

The steps to calculate the settlement amount are detailed in the settlement scheme legislation.

Step 1: calculating the gross amount of income subject to the loan charge

We will work with customers to calculate the total gross amount of income they received through the arrangements subject to the loan charge in each tax year. This will include:

• the amounts they received as untaxed loans or quasi-loans through these arrangements
• any other income they received through these arrangements, for example amounts that had tax and National Insurance contributions correctly paid on them when the income was received
• the amounts which were kept by the promoter as their fees

We will work out these amounts based on information we hold, information provided by customers, or based on a reasonable estimation.

If customers do not have information on the amount of promoter’s fees, we will estimate them by grossing up the untaxed loans by 15%, so that the promoter’s fees are equal to 15% of the total of the loans and fees in each tax year.

Step 2: calculating the additional Income Tax and National Insurance contributions

We will calculate a simplified amount that represents the additional Income Tax and National Insurance contributions that would have been due in each tax year, had they been accounted for correctly at the time the income was received. This will not include any late payment interest or amounts that were originally taxed.

The scheme legislation allows for the additional tax and National Insurance contributions due to be calculated on a simplified basis. In most cases, the settlement amount under the new scheme will be the same as or lower than it would have been without simplification. For example, all customers will have an amount representing National Insurance contributions calculated at Class 4 rates, which are the lowest, rather than using the exact classes of National Insurance contributions that would normally apply. The simplified calculation also will not take account of:

• Scottish rates of income tax
• dividend and savings rates
• marriage allowance
• capital gains
• student loans
• High Income Child Benefit Charges 

Step 3: calculating a deduction for promoter fees

We will deduct an amount for promoter fees from the additional amounts due in each tax year.

The amounted deducted in any tax year can be up to £10,000, but it cannot reduce the additional amount due for a tax year from step 2 below £0. The deduction is calculated on the gross income received in a tax year through these arrangements from step 1, as:

• 10% of the first £50,000
• plus 5% of the next £100,000

Step 4: calculating the settlement amount

We will add together the remaining amounts due for each tax year from step 3 and deduct £5,000 — this cannot reduce the amount due below £0.

This amount will be the individual’s settlement amount in nearly all cases. However, for some customers the settlement amount will need to be restricted as there is a £70,000 limit on the total discounts that can be applied.

Step 5: calculating the £70,000 limit

We will calculate a simplified estimate of the Income Tax and late payment interest in relation to a customer’s loan charge liability in the 2018 to 2019 tax year. The settlement scheme legislation refers to this amount as the ‘loan charge gross liability’.

The £70,000 limit will apply if the difference between the loan charge gross liability and the settlement amount is more than £70,000.

Where the limit does apply, the settlement amount will instead be the loan charge gross liability minus £70,000.

The loan charge gross liability will not include Inheritance Tax, National Insurance contributions, penalties and other liabilities (for example, section 222 of the Income Tax (Earnings and Pensions) Act 2003) that may otherwise be due and payable if a customer decides not to settle under this settlement scheme.

This means that customers are less likely to be affected by the £70,000 limit than if we were to compare the settlement amount to the actual amount customers may have to pay if they decide not to settle.

The calculation of the loan charge gross liability will also be simplified on the same basis as described in ‘Step 2: calculating the additional Income Tax and National Insurance contributions’.

The loan charge gross liability late payment interest will only be calculated:

• from 31 January 2020 (the 2018 to 2019 Self Assessment filing deadline)
• to 30 October 2024 (the date the review was announced at Budget 2024)

This is instead of calculating it to the date the tax is paid, to make sure customers affected by the £70,000 limit are not disadvantaged by when they receive a settlement offer. We will also consider payments made before 30 October 2024 when calculating the interest.

Some customers made a ‘spreading’ election, which allowed them to split the amounts they received that are subject to the loan charge, equally across the 2018 to 2019, 2019 to 2020 and 2020 to 2021 tax years. Their loan charge gross liability will instead be the total of the amounts calculated for each of these years added together. This will include interest calculated from the Self Assessment filing deadline for each of these years.

Example 1 — the £70,000 limit does not apply

For this example, we have rounded figures to the nearest £10.

Asim received income through disguised remuneration arrangements from 6 April 2013 to 5 April 2016. In each tax year through the arrangements, he:

• received £5,000 as a taxed amount
• received £20,000 in loans
• paid £3,000 in fees

In the tax year 2018 to 2019 he earned £30,000, which was taxed through PAYE.

Under the new terms, Asim’s:

• loan charge gross liability is £25,360
• discounted amount is £2,810
• total discount is £22,550

As his total discount is less than £70,000, the limit does not apply to him.

Asim’s settlement amount is £2,810.

Example 2 — the £70,000 limit applies

For this example, we have rounded figures to the nearest £10.

Barbara received income through disguised remuneration arrangements from 6 April 2013 to 5 April 2016. In each tax year through the arrangements, she:

• received £5,000 as a taxed amount
• received £250,000 in loans
• paid £30,000 in fees

In the tax year 2018 to 2019 she earned £250,000, which was taxed through PAYE.

Under the new terms, Barbara’s:

• loan charge gross liability is £412,900 — made up of £337,500 in tax, and £75,400 in late payment interest
• discounted amount is £331,910
• total discount is £80,990

As the discount is more than £70,000, the limit applies to her.

This means that her discount is reduced to £70,000. Her settlement amount is £342,900, which is Barbara’s loan charge gross liability less £70,000. The settlement amount includes £280,280 in tax and £62,620 in interest.

Calculating the settlement offer for employers

The settlement scheme legislation provides that employers can settle on the same basis as individuals.

Where an employer is eligible for the settlement scheme and still exists, we will ask them to settle in relation to all their employees who received income through the loan charge arrangements.

The employer’s settlement amount will be the total of the settlement amounts for each of their employees relating to that employment added together. The settlement amount for each employee is calculated as shown in section ‘Calculating the settlement offer for individuals’ steps 1 to 5.

This means that employers will not need to pay secondary Class 1 National Insurance contributions to settle under the scheme and that the discounts under the settlement scheme are given for each individual employee included within the settlement.

If an employee only has loan charge arrangements with one employer

If an employer had one employee who received income through loan charge arrangements, and they received no income through other loan charge arrangements, the employer settlement amount will be the same as the individual’s settlement amount.

If an employer had 3 employees who received income through loan charge arrangements, and they had no income through other loan charge arrangements, the settlement amount would be the total of the settlement amounts for all employees added together.

Example 3 — employees with no other loan charge arrangements

In this example, we have rounded all figures to the nearest £1,000 and assumed that the loan charge applies to all the income received through disguised remuneration arrangements.

A Ltd employed David, Emma and Faye, paying them through loan charge arrangements from 6 April 2013 to 5 April 2016. A Ltd was operating in the UK on 5 April 2019, so was required to account for the loan charge for all three employees.

Each employee can settle under the new terms for the following discounted amounts:

• David for £30,000
• Emma for £50,000
• Faye for £150,000

A Ltd can settle under the new terms for £230,000. This resolves the loan charge arrangements in full for the employer and all three employees.

If an employee has loan charge arrangements through more than one employer

Some employees may have also received income through other loan charge arrangements, separate to the arrangements relating to that employment. In this case, each employer will be required to settle an amount for each employee that relates to their employment of that employee.

Each individual employee’s settlement amount will therefore be divided between their employers. This will make sure that the discounts under the settlement scheme are divided fairly and not used by whoever settles first.

If an employer does not settle, but we are able to recover some of the tax and National Insurance contributions from them through formal compliance action, we will reduce the employee’s settlement offers to reflect this.

Example 4 — employees with loan charge arrangements through more than one employer

In this example, we have rounded all figures to the nearest £1,000 and assumed that the loan charge applies to all the income received through disguised remuneration arrangements.

B Ltd employed Harry and Isaiah, paying them through loan charge arrangements from 6 April 2013 to 5 April 2016. Each employee then received income through other loan charge arrangements:

• Harry was employed by C Ltd from 6 April 2016 to 5 April 2018, receiving income through loan charge arrangements — C Ltd was still operating in the UK on 5 April 2019, so was required to account for the loan charge

• Isaiah was employed by D Ltd from 6 April 2016 to 5 April 2017, receiving income through loan charge arrangements — D Ltd dissolved before 5 April 2019, so was not required to account for the loan charge

Under the new terms, B Ltd will receive an offer covering some of the liabilities for Harry and Isaiah.

Calculating the employer’s liability for each employee

Harry has an additional amount of £10,000 for each tax year he received income through loan charge arrangements. He was employed by:

• B Ltd for 3 tax years — the additional amount for these years is £30,000

• C Ltd for 2 tax years — the additional amount for these years is £20,000

Harry’s settlement amount is:

£50,000 − £5,000 deduction = £45,000

B Ltd’s portion of Harry’s total liability is calculated as:

£30,000 ÷ £50,000 = 60%

This means that the amount relating to his employment with:

• B Ltd is £27,000

• C Ltd is £18,000 (40%)

Isaiah has an additional amount of £10,000 for each tax year he received income through loan charge arrangements. He was employed by:

• B Ltd for 3 tax years — the additional amount for these years is £30,000

• D Ltd for one tax year — the additional amount for this year is £10,000

Isaiah’s settlement amount is:

£40,000 − £5,000 deduction = £35,000

B Ltd’s portion of Isaiah’s total liability is calculated as:

£30,000 ÷ £40,000 = 75%

This means that the amount relating to his loan charge with:

• B Ltd is £26,250

• D Ltd is £8,750 (25%)

What this means for the employers

The resulting settlement offers are as follows:

• B Ltd will receive a settlement offer for a total of £53,250 — £27,000 for Harry and £26,250 for Isaiah
• C Ltd will receive a settlement offer for £18,000 for Harry
• D Ltd dissolved before 5 April 2019 so they will not receive a settlement offer for Isaiah — Isaiah has to pay this himself

What this means for the employees

For Harry, if both of his employers:

• settle, he will have nothing to pay
• do not settle, we will send him a settlement offer for his settlement amount of £45,000, less any amounts we are able to recover from B Ltd and C Ltd in respect of his arrangements

For Isaiah, if B Ltd:

• settles, he will receive a settlement offer for his remaining amount — £8,750 for D Ltd as they dissolved before 5 April 2019
• does not settle, he will receive a settlement offer for his full amount of £35,000, less any amounts we are able to recover from B Ltd

If B Ltd does not settle, but we are able to recover some of the amount from them, this will reduce Harry and Isaiah’s settlements.

Calculating other liabilities to be included

Some customers who are eligible for the settlement scheme, may also have outstanding liabilities on income received through disguised remuneration arrangements that are not subject to the loan charge. This can include income received through arrangements:

• before 9 December 2010 or after 5 April 2019
• between 9 December 2010 and 5 April 2019, because the income was paid directly to an individual by their employer and not through a third party

You can find out more about when the loan charge applies.

We have written separately to customers who are in this position. Customers will need to settle all their outstanding disguised remuneration liabilities and the late payment interest on them, at the same time as their loan charge settlement. This will only apply where we have assessed or opened an enquiry before 26 November 2025 into the other disguised remuneration arrangements they have entered into — the date that the government’s response to the review was published.

Where a customer has loan charge and non-loan charge disguised remuneration income in the same tax year, the additional amounts due will be worked out using the following steps.

1. Calculate the additional amounts due on the non-loan charge disguised remuneration income, under the disguised remuneration 2020 settlement terms.

2. Calculate the amounts due on the loan charge income, under the loan charge settlement scheme.

This means that the liabilities still accruing interest are calculated at the lowest tax rates, which will minimise the interest that is due.

Crediting the amounts already paid

We will deduct amounts a customer has already paid against their loan charge liability from the settlement amount calculated under the scheme. This could be payments made against their loan charge liability included in a contract settlement after 1 June 2021 or included in a formal assessment we have issued. The remaining amount after we have deducted amounts paid is the payable settlement balance.

If the payments made cannot be credited against the settlement amount in full, because the settlement amount is less than the amount paid, the remaining balance cannot be credited against other HMRC liabilities or refunded.

If a customer has made payments as part of a payment plan that includes both loan charge and non-loan charge liabilities, we will allocate these payments against non-loan charge amounts first as this will be most beneficial for customers.

If a customer is entering into a settlement for both loan charge amounts and non-loan charge disguised remuneration liabilities, amounts paid against their loan charge liability will not be credited against other disguised remuneration liabilities included within the settlement.

An exception to customers not being able to receive a refund is where they have made a payment on account of liabilities that are not final. For example, payments made in relation to:

• amounts that are under appeal — to stop late payment interest accruing
• Accelerated Payment Notices (APNs) issued by us

We will offset these payments against a customer’s settlement amount, then any other HMRC liabilities and then refund any excess to them.

Penalties

We will only charge penalties in exceptional cases in relation to the loan charge arrangements being settled under the scheme. In most cases, either:

• we will not charge penalties
• the penalties that have already been charged that are linked to the loan charge arrangements covered by the settlement scheme will no longer be payable

This includes:

• late payment penalties
• late filing penalties
• behavioural penalties — except where HMRC has evidence that the inaccuracy was deliberate, and attempts were made to conceal it

Penalties that have already been paid will not be credited under the settlement scheme.

Penalties that have already been charged in relation to any outstanding non-loan charge disguised remuneration liabilities a customer has will be included within the settlement.

Settlement process for different situations 

If a settlement is agreed under the scheme

When the customer enters into their settlement agreement, it will replace the relevant loan charge amounts that they would otherwise be liable for. This includes loan charge amounts and connected amounts, like penalties, which will no longer be payable.

If a settlement is not agreed under the scheme

Customers who choose not to settle under the scheme will need to pay their full loan charge liability as well as any other disguised remuneration liabilities and any other charges that apply, for example late payment interest.

We will contact customers about resolving their outstanding disguised remuneration liabilities under our normal processes.

If the customer has nothing more to pay

Some customers will have nothing more to pay after the discounts provided by the scheme are applied. We will send them a settlement offer showing that the balance to pay is £0.

Customers will still need to sign and return the acceptance form sent with the settlement offer to finalise a settlement under the scheme. This is required as it is the settlement being entered into which means all other loan charge and connected liabilities will no longer be payable.

If the customer has a final loan charge liability or has notified their appeal to the First-tier Tribunal

Final but unpaid liability

Some customers may already have a final liability in relation to the loan charge which they have not paid in full. For example, a customer may have received a formal assessment from us for their loan charge liability, that they either:

• did not appeal within statutory timeframes
• did appeal and the appeal has been resolved

Customers will also have a final loan charge liability where that liability was included in a contract settlement that they agreed to after 1 June 2021 and it has not been paid in full.

Customers in this position will have 90 days to settle from the date of the settlement offer. 

If they do not engage with us in this period, they will not be able to settle under the settlement terms and we will seek to collect the full amount of the final liability. This is because there is no further scope for the liability to be challenged.

 The exceptions to this are if:

• a customer has an employer that we’re attempting to collect the tax and National Insurance contributions from first
• a customer can demonstrate exceptional circumstances that prevented them from engaging with us
• a short extension is needed to finalise the settlement, where a customer has been engaging with the settlement process

Ongoing litigation

Customers who have notified their appeal to the First-tier Tribunal, to finalise their loan charge liability, will have a 90-day period to engage with the settlement. If they do not engage with the settlement within this period, they will not be able to settle under the terms. This is so that the litigation can continue without delay where customers do not want to settle.

If there’s an ongoing enquiry and appeal cases

Most customers who are eligible for the settlement scheme will have a liability in relation to the loan charge that is not final, because they have:

• an open enquiry into their tax position for the loan charge
• an ongoing appeal in relation to their tax position for the loan charge that they have not yet notified to the First-tier Tribunal

Where there is an ongoing enquiry, we will not have issued a formal decision to tell customers the additional tax we believe is due in relation to the loan charge.

These customers will have longer than 90 days to settle. If customers do not engage with the settlement process we will try to progress their case by issuing:

• formal decisions in open enquiry cases, so that the customer knows the amount they would need to pay for the loan charge if they do not settle
• our formal ‘view of the matter’ where there is an ongoing appeal

After this has happened, customers will still be able to settle under the scheme up until the earlier of any appeal:

• deadlines expiring
• being formally resolved
• being notified to the First-tier Tribunal

If we are seeking to collect the tax and National Insurance contributions from an employer first, we will still send a settlement offer to individuals at the same time as their employer. However, formal action to progress an individual’s enquiry or appeal will not restart until after we have established whether the tax and National Insurance contributions can be collected from the employer and, if not, the individual has been given a further period to agree a settlement under the scheme.

Contacting us

Contacting us will not commit you to settling your loan charge liability under the settlement scheme terms. 

We want to provide the right support for you through this process. Contact us and we will explain your options and help you understand what to do next.

You can contact your caseworker using their details and the customer references included in your letter. If you do not have a caseworker, you can contact us by: 

• telephone: 0300 322 9494 
• email: CAGetHelpOutOfTaxAvoidance@hmrc.gov.uk 

To email us, you must tell us in writing (by email or post) that you understand and accept the risks of using email — read Corresponding with HMRC by email. 

You can also write to us using the following address:

Counter Avoidance HMRC
Bootle
BX9 1LW

Tell us if you’ve any health or personal circumstances that may make it difficult for you to deal with us. For more information, read Get help from HMRC if you need extra support.