Loan Charge Independent Review


This article was drafted a few days after the publication of the independent Loan Charge Review by Sir Amyas Morse. It is entirely possible that further information will come to light as 2020 gets into full swing, and, in particular, as the government’s response to the Review is fleshed out.

Some of the changes announced will have implications for 2018/19 Self Assessment tax returns, filed or yet to be filed.


Independent Loan Charge Review: Report on Policy and its Implementation

Independent Loan Charge Review: Government Response to the Review

Disguised Remuneration: Government Guidance Following the Outcome of the Independent Loan Charge Review

Legislation and Potted History


  • F(No.2) A 2017 Sch 11 (as amended by FA 2018)
  • Applies a charge under the pre-existing Disguised Remuneration legislation at ITEPA 2003 Part 7A (itself introduced by FA 2011)
  • On certain loans whose balances were still outstanding at 5 April 2019

The legislation is less concerned with the history of the loans than the outstanding balance; the loans themselves could have been up to 20 years old. HMRC’s position is that these loans were not really loans but earnings in disguise, and should be subject to Income Tax and also to NICs.

The purpose of this anti-avoidance legislation was to mop up any contractor loans that had hitherto escaped the Disguised Remuneration regime, and to treat them as a “lump sum” of income in the 2018/19 tax year.

While it could be argued that HMRC was substantively “proven right” by the outcome of the Rangers cases (culminating in RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) v Advocate General for Scotland [2017] UKSC 45) that such loans were taxable as earnings, it could also be observed that HMRC had not always seemed so sure of its eventual success, and had failed over many years to open enquiries into a huge number of taxpayers’ returns where such loans were in point – and had been fully disclosed.


The attack on the balance of the loan(s) still outstanding at 5 April 2019, so to treat capital amounts effectively as fresh income, was clearly an attempt to circumvent its being time-barred from collecting amounts HMRC had “always known” were taxable as income.

It could be argued (and frequently has been) that one should be entitled to certainty in one’s tax affairs; to render a capital loan balance – from a loan made up to 20 years ago – now to Income Tax would appear to be a quite blatant transgression.

The main counterargument is that loans as disguised remuneration have cost the Exchequer £billions in lost revenue, (HMRC had previously suggested that the Loan Charge should recover around £3.2billion) and it was right that those who had benefitted from the Loan Charge should “pay their fair share”.

A subsidiary argument is that HMRC had to take such a sweeping approach because many taxpayers had not disclosed the nature of their arrangements in their tax returns, so HMRC would never know the full extent/history of such loans.

However, it could be argued in return that, just because HMRC is unable to know exactly whom it should tax and by how much, should not give it carte blanche to tax a minority of taxpayers on an arbitrary basis.

It has also been pointed out that many taxpayers who used arrangements now caught by the Loan Charge did not do so of their own volition – or, at least, were not fully appreciative of the contentious nature of the arrangements they were being invited to undertake. Examples have been given of teachers, nurses, IT and construction workers who were presented with new terms of work that incorporated arrangements, now caught by the Loan Charge, as a fait accompli.


There is a question over whether the Loan Charge is retrospective or “merely” retroactive. It must be borne in mind that there is nothing in law specifically to prevent retrospective tax legislation. However, it makes a difference inasmuch as the label of “retrospective taxation” can be highly problematic, politically speaking.

Notwithstanding, the Loan Charge did not actually “go back in time” to make loan transactions taxable that were not taxable at the time they were made: when it was introduced in 2017, it acted to make a future balance taxable. The effect is inarguably retroactive, and retrospective in the more general sense that the word is used: it looks back up to 20 years. To put it another way, it is retrospective in spirit, if not according to the letter of the law.

The Lump

If the retrospectivity of the regime alone were not cause for concern, then taxing up to 20 years’ worth of deemed income in 2018/19 was almost certain to be problematic. In particular, for those nurses and teachers (etc.) who had received relatively modest amounts through loans over 20 years, and who would potentially find themselves paying Additional Rate Income Tax for the first time in their lives.

Independent Loan Charge Review

Much has already been written about the iniquities of the Loan Charge – see for example:

The Loan Charge Action Group

Loan Charge All Party Parliamentary Group

Report on Time Limits and the Disguised Remuneration Loan Charge (HM Treasury’s own review of the Loan Charge, which was widely discredited)

The Powers of HMRC: Treating Taxpayers Fairly

MPs Warn HMRC is Out of Control

Criticism of the Loan Charge and its handling by government resulted in the announcement of an Independent Review by Sir Amyas Morse, former Comptroller and Auditor General of the National Audit Office. His findings and recommendations were published on 20 December 2019.

Independent Loan Charge Review: Report on Policy and its Implementation

In summary, the Review was broadly supportive of the aims of the Loan Charge – to counter avoidance – but sufficiently critical of its scope and implementation that it made a number of recommendations significantly to curtail the more offensive aspects of the Loan Charge.

Some of the Review’s findings included:

  • Elements of the Loan Charge went too far in undermining or overriding taxpayer protections.
  • Despite HMRC’s contention that it had always said that such arrangements did not work, for many years the courts had not supported HMRC’s view about the taxable nature of loan schemes and the leading cases from the time had been consistently decided against HMRC’s position, broadly until FA 2011 served to draw a line in the sand.
  • The government’s objective in introducing the Loan Charge – namely, shutting down the use of the schemes – has not been met, as they apparently continue largely unabated. The wider focus on reducing the tax gap, and reducing tax avoidance, is also unlikely to change.
  • While HMRC’s powers have increased significantly, particularly with the Loan Charge, its performance and accountability has not increased at the necessary rate when compared to that accumulation of those powers.
  • The government’s published Impact Assessment of the Loan Charge “did not take full account of the impact that it would have on individuals and their families”. It has become clear that the original Impact Assessment considered the effect on the UK population overall and determined that the potentially serious consequences for the roughly 50,000 individuals (and by implication their families) were not material.

Government Response to the Independent Review

The government’s immediate response to the publication of the Independent Loan Charge Review is summarised as follows:

  • The 20-year retrospective effect of the Loan Charge in its original guise has been slashed and will in no circumstances apply to loans made before 9 December 2010 (which was when the draft legislation for FA 2011 was published – including the fundamental changes to tackle Disguised Remuneration), and;
  • Furthermore, the Loan Charge will not apply to any outstanding loans made in any tax years since the but before 6 April 2016, where the avoidance scheme use was fully disclosed to HMRC and HMRC did not take action (for example, opening an enquiry)
  • Having re-calculated their Loan Charge in accordance with the foregoing, taxpayers can now elect to spread the residual Loan Charge evenly across 3 tax years:
        • 2018/19
        • 2019/20
        • 2020/21

Spreading the additional income in this way should help to reduce the risk of taxpayers being unfairly catapulted into higher tax bands than they would have suffered in the first place; it may also serve to ameliorate cashflow by potentially deferring some of the cost of the Loan Charge to later years.

  • HMRC will make voluntary restitution against payments that had already made by taxpayers in order to prevent the Loan Charge arising, and included in a Settlement Agreement made since March 2016 (when the Loan Charge was announced). But it will not do so until the required changes to the Loan Charge legislation have been enacted by Parliament, which is expected to be Summer 2020.
  • There will be flexibility in terms of Time to Pay any residual liability:
  • Nobody will have to pay more than 50% of their disposable income towards the Loan Charge, unless they have very high levels of disposable income
  • Those without disposable assets and earning less than £50,000 a year will get Time to Pay of at least 5 years but
  • Those earning less than £30,000 will get at least 7 years’ Time to Pay
  • There is no upper limit for Time to Pay but longer periods will require the disclosure of detailed financial information
  • Taxpayers who are yet to make a 2018/19 tax return incorporating a Loan Charge will have until 30 September 2020 to file and pay their tax without suffering the usual penalties or interest for late filing, payment or inaccuracies in relation to the Loan Charge itself, provided the return is submitted, and payment made or arrangement agreed, by that date
  • But while the threat of the Loan Charge itself may have been removed in some cases, any underlying disputes are still live and open enquiries will need to be resolved by settlement or litigation


Implications for 2018/19 Tax Returns

Having regard to point (6) above, the government has advice for taxpayers in various circumstances in its published guidance in response to the Independent Loan Charge Review. Taxpayers will be able to stand over collection of the Loan Charge using a helpline number - 03000 599110.

The draft legislation to formalise the changes summarised above has not been published at the time of writing. It is certainly possible that further changes will be made before the draft legislation is published or even later.

It is not yet known whether or not a spreading election will be revocable and it is conceivable that a taxpayer’s circumstances will change such that a late election / revocation would be advantageous.

Likewise whether there might be special provision to allow for amendments to one’s Self Assessment relating specifically to the Loan Charge.

It seems likely to this writer that advisers may well prefer to wait to see the detail of the legislation and to consider the professional press’ response to these changes, rather than rush to submit a tax return by the usual deadline.


It is astonishing that, while the Loan Charge may prove at least partly successful in terms of recovering more tax, the report repeatedly points out that the measure appears to have done little to achieve its key aim of discouraging further such activity. In fact the report states that there were more first-time users in 2017/18 than in any year dating back to 1998/99.

Sir Morse’s recommendations – those on which the government has already committed to act – will be a great help to many taxpayers who have been caught up in the Loan Charge.

There will of course be many who say that the changes do not go far enough, and that any element of retrospectivity is unacceptable. In particular, this writer finds it very difficult to lend credence or credibility to the notion that Average Joe taxpayer should really have known not to engage in any Disguised Remuneration Loan activity from the day that the government published its draft 2011 Finance Bill. Or even had any say in the matter, in many cases.

In a similar vein, it has traditionally been possible to spread one-off income adjustments over 6 years rather than 3, and it would seem all the more appropriate in such circumstances as these.

It remains to be seen whether or not the government really will act on other of the Review’s recommendations, including:

  • A more considered approach to Impact Assessments.
  • Better performance and training in line with HMRC’s Charter.

Although it has committed to fund an external body to provide independent advice to lower-income taxpayers who are dealing with HMRC debt.

The formal government response also includes a commitment to “ensure people who entered into Disguised Remuneration avoidance schemes before 9 December 2010 still pay the tax due and make their contribution to funding public services”, and that “further detail will be announced at the Budget”. Assuming that the government is not referring only to cases already under enquiry, it is difficult to see that the government can accept the clear criticism of “excessive retrospectivity” in the Independent Review, while committing to collect tax that would otherwise be too stale to collect within the existing framework.

Finally, while the Review does make recommendations as regards improving HMRC “communication”, it does so more in the context of communicating directly with affected taxpayers in relation to their affairs specifically, and not in relation to the questionable narrative put out by government departments over the life of the Loan Charge.

This article first appeared as an update to subscribers to Bloomsbury Professional Tax Online. More information about our online services is available here.

Lee Sharpe

Written by Lee Sharpe

Lee Sharpe is a CTA with over 20 years experience advising clients on tax matters.

Blog Archives

BPro Tax

Tax Online

Online access to Bloomsbury Professional books, looseleafs and journals, across numerous practice areas. Free Trial

Need Help?

Bloomsburyprofessionallaw If you need any help with finding publications or just ask a question. Talk to an Advisor: 01444 416119
or send us a message