The government has outlined a new settlement scheme for individuals with outstanding Loan Charge liabilities. However, industry experts point out that the operators of these schemes have managed to escape “scot-free”.
The announcement was published alongside Budget 2025 and follows the independent Ray McCann review commissioned in January this year. The settlement terms are expected to be offered to around 32,000 people.
The Loan Charge was introduced to tackle the use of disguised remuneration schemes, whereby members (typically contractors) were paid in the form of loans rather than as taxable income.
For some background on the Loan Charge, see our guides on the Loan Charge 2019 reforms and more on the January 2025 Loan Charge review announcement.
Government accepts almost all of the 2025 review recommendations
The conclusions of an independent review, led by Ray McCann, were published at Budget 2025.
The government has accepted all but one of its recommendations and has also included a £5,000 write-off for every affected individual.
The authorities hope that the settlement will help to remove the barriers that previously stopped many people from engaging with HMRC.
Official settlement features
The Budget policy paper confirms that the settlement scheme will apply to individuals with outstanding liabilities.
Some of the key elements include:
- Recalculating liabilities using the tax rates that applied in the years the loans were taken, rather than the 2019 Loan Charge rates.
- Reducing the recalculated amount to reflect historic promoter fees, up to a maximum discount of £10,000 for each year a loan scheme was used.
- Applying a further £5,000 reduction to the final settlement amount.
- Charging no late payment interest, which will reduce what many people pay by around 20 percent.
- Writing off any inheritance tax already due as a result of using the schemes.
- Offering payment arrangements tailored to each person’s ability to pay. Anyone can choose to pay over five years without an affordability discussion, although forward interest will apply to installments.
- Capping the maximum total reduction at £70,000 per individual.
- Excluding promoters of tax avoidance schemes from using the settlement.
According to the government, most individuals who choose to settle could see their outstanding liabilities reduced by at least 50 percent.
The policy paper also suggests that around 30 percent may be able to settle without paying anything.
Why the settlement is being introduced
The McCann review was asked to find a way to bring the Loan Charge to a fair conclusion and to support those affected.
However, although the new terms will be welcomed, let’s not forget that the impact of this retrospective charge on tens of thousands has been immense.
Sam Cox, Director of UmbrellaSure, said:
For many people, whose finances have been torn apart by the Loan Charge and tax avoidance schemes, this gesture from the government won’t cut it. What’s more, the fact remains that these schemes still operate in the market today, posing a threat to workers and the wider supply chain.
The Loan Charge initially took effect in 2019 through the Finance (No. 2) Act 2017 and targeted disguised remuneration schemes used between 9th December 2010 and 5th April 2019.
The policy paper notes that concerns about the impact of the charge continued to be raised, leading to the new independent review earlier this year.
The measure will have retrospective effect from 5th April 2019, the date the Loan Charge rules applied to outstanding loans.
What do industry experts say?
In a LinkedIn post, Ray McCann said the settlement package should enable the vast majority of those still in scope to resolve their position, with significant reductions for many and the full removal of liabilities for around 30 percent.
He said:
Some professional firms are already active but I would encourage all of the tax professionals who have clients with loan scheme liabilities to encourage their clients to take, what I expect will be, a final opportunity to reach settlement.
We asked Dave Chaplin, CEO of ContractorCalculator, for his thoughts:
The Review report reads as a scathing commentary of the ‘extraordinary statutory provision’, referring to the policy as a failure. The outcome falls short – many people will still have bills that they cannot afford to pay.
Whilst there were some who knew they were entering an avoidance scheme, vast numbers were forced into them by recruitment agencies as a condition of work, who then received material referral fees. The victims end up with the bills, and the facilitators got off scot free.
Fortunately, from April 2026, recruitment agencies will have no advantage in pushing workers into dodgy schemes. The new Umbrella Tax Avoidance Legislation results in the agency getting the tax bill if the tax is not correctly paid.
Sam Cox also commented on the forthcoming umbrella industry changes:
Upcoming tax reforms in the umbrella industry are designed to help shore up compliance, by putting the onus on recruitment agencies to police it themselves. But regulation, which has been promised for 2027, could and arguably should have been introduced years ago.
You can access the full technical details in the updated Loan Charge Review and the government’s response.
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