The loan charge controversy

6th September 2019


The loan charge is a taxation policy that has gained wide media attention and controversy and has been central, along with IR35, to Contractor concerns. In this article we give an overview of what the loan charge is, its controversy and the official review that has been launched against it.


What is the loan charge?


HMRC explains that the loan charge was announced in the 2016 budget and designed to ensure that those who used loan schemes pay their fair share of tax – something that they believe loan schemes were designed to avoid. They expect that the introduction of the loan charge policy will protect £3.2 billion dedicated to public services.

HMRC describes that loan schemes were used by individuals – typically those in the business services industry, like many of our clients – so that they could pay themselves a salary via loans. These loan schemes however did not need to be repaid, or generate interest as loans typically do, and so have been deemed by HMRC as opportunities for individuals to receive money without taxation, making them ‘disguised remuneration loans.’


How does the loan charge work?


The loan charge policy came into force at the end of the 2018/2019 tax year on April the 5th. By that date, anyone who used one of these ‘disguised remuneration loans’ had to have made contact with HMRC and repaid the total loan amount or make an agreement with them to settle the amount owed over an agreed period, according to a ‘manageable payment plan.’

After this date the loan charge was applied to individuals found to be using loan schemes who had not come forward and made an attempt to settle.


Why is the loan charge controversial?


There are many reasons for which the loan charge has been deemed controversial.

Firstly, many claim that they did not know that the loan schemes they were participating in were unapproved. In many cases individuals were advised to pay themselves in this way by their financial advisers.

More than this, the ethics of the charge have been called into serious dispute as HMRC is able to review your financial conduct since 1999 – a twenty year period – and apply a charge for it. This has crippled many individuals, with the Loan Charge Action group, an organisation set up to campaign for a judicial review of the policy, reporting that families have been torn apart and even suicides committed as a result of the charge.

Contractor Calculator, a resource-rich forum for Contractors, describes that:

“The Charge exists purely as a fig leaf to cover up HMRCs own inactions for the past 20 years. They already had sufficient powers to enquire/warn people about Loan schemes and indeed claim they have, but this is simply not what the facts tell us.

HMRC themselves hired contractors on these schemes, as did the Treasury. For HMRC to now say that such schemes do not work is fine and acceptable. But to retrospectively apply this going back 20 years is an affront to natural justice and brings down the aforementioned walls of certainty and crushes the vital protections in place to protect the taxpayer.”


The loan charge review


On September the 4th, during Prime Minister’s Questions, Boris Johnson responded to considerable pressure from both his allies and campaigners by announcing a review into the loan charge policy – something which was committed to during his party’s leadership contest. Johnson said,

“It is a very, very difficult issue and what I have undertaken to do is have a thorough going review.”

With the details of the review yet to be released by the Treasury campaigners, like those part of the Loan Charge Action Group, have argued that a review is “meaningless” without a simultaneous suspension of the policy. The hope from such campaigners is also that the review is independent from HMRC, ensuring a true evaluation of the policy.



If any of our clients are suffering from the loan charge and looking for support you can text ‘LCAG HELP’ to 81025 and a member of the Loan Charge Action Group team will call you back.

Find out more on the HMRC website.

All content is accurate at the time of publication

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