self assessment

Get Real Over Loan Charge

ICAEW critical of proposed contractors’ loan charge

Finance Bill 2017 proposes to introduce new charges on outstanding loans from disguised remuneration (DR) schemes. These charges apply to the total amount of DR loans made to employees and traders after 5th April 1999 and that are outstanding as at 5th April 2019. Those affected will be charged to tax at their marginal tax rates in 2018/19 on their value of all outstanding loans.

The Tax Faculty of the Institute of Chartered Accountants in England and Wales (ICAEW) are concerned about the potential misery that this legislation will cause, including those who were misled into using DR schemes, and has presented written evidence to Parliament.

The ICAEW warns that introducing a charge on transactions going back 20 years could lead to individuals going bankrupt which could limit the tax take and also leave the Government vulnerable to challenge under Human Rights Law.

For those who knew what they were getting into and deliberately avoided tax, the ICAEW have little or no sympathy and believe that HMRC should have acted much sooner against these schemes. However, for many others who were misled about contractor loan arrangements and had no appreciation of what they were doing, the Faculty maintains that they should not be so harshly penalised. Many of these individuals, say the Faculty, had little choice but to join schemes thrust upon them by employers and agencies, if they wanted to work.

Workers such as nurses, teachers, IT workers, cleaners etc were often paid a salary around the National Minimum Wage, with the balance and majority of their earnings being paid via loan arrangements. As unpalatable as this may have been for some scheme users, they put their faith in the advice they were given.

The Rangers Supreme Court case put the final nail in the coffin for DR loan schemes but why did it take nearly 20 years for HMRC to tackle these schemes and their architects in a decisive manner?

Reports from ICAEW members claim that HMRC are using unreasonable estimates to identify loan balances subject to tax. In some cases, HMRC are using 6 – 8 x salary despite evidence suggesting lower figures. As loan balances would have been reported to HMRC on forms P11D, then HMRC have no cause to be using estimates.

It is recommended by the Faculty that rather than HMRC forcing individuals into bankruptcy, the department would collect more tax if it were to take a sympathetic and flexible approach, where appropriate, and allow taxpayers to enter into longer time-to-pay arrangements.

Other recommendations

Tax cap

The ICAEW recognises that it would only be fair if the tax collected under the loan charge broadly matched the tax that would have been paid had the loans been treated as earnings at the time and that the Exchequer has been left out of pocket.

As it stands, the legislation will tax all the loans in a single tax year, so individuals may end up paying higher rates of tax on their total value when, had they been taxed properly at the time only 20% tax would have been due. One solution proposed is to cap the tax at the rate that would have been due had the loan been properly treated as earnings for the tax year in which it was made, plus interest charged on tax paid late.


As an alternative to capping, loans could be top-sliced over the number of years they were granted and the tax charge limited to tax chargeable on these sums plus interest on tax paid late that would have been due had the top-sliced loans been properly treated as earnings at the time.


During the course of 4 years an IT contractor is granted separate loans of £15,000, £25,000, £35,000 and £45,000.

Total loans = £120,000/4 years = £30,000

Marginal rate of tax; £30,000 x 40% = £12,000

Total tax due; £12,000 x 4 years = £48,000


  • Mike says:

    Hi, interesting article.

    Are any of ICAEW’s views / concerns likely to be taken into account?

    The article isn’t clear if their POV is likely to be considered.

    Thanks in advance ….


  • Geoff says:

    I do not have much sympathy for those who used loans as disguised salary. Such schemes were blocked years ago by masking loans to directors illegal and taxable.
    It is artificial ploys such as this which has attracted so much adverse comment in the press and HMRC attention for contractors, causing a lot of collateral damage in the process.
    Thinking that a loan where there is no requirement to repay it is anything other than a taxable gift is hardly a cunning plan.

  • Contractor Chris says:

    I cannot believe that anyone signing up to one of these schemes did not do so without understanding the risk that (a) the loan would need to be paid back and/or (b) HMRC would see through it.

    The small print in every scheme I looked at stated that (i) I gifted my revenues to the “trust”,(ii) they would loan me money with no fixed repayment scheme and (iii) the capital balance would remain outstanding in perpetuity.

    But verbally “trust me, we’ll bury the loan in some volatile currency and/or write it off” – “we’ll never chase you for the debt…… honestly!”

    if it looks like a duck…… !

    So whilst I feel a degree of sympathy for those caught up in the mess – I think it is they that need to “get real” and not the revenue.

    One could, of course just honor the contract and pay back the loan? ……………………………………”but they were never meant to be paid back!!!!!!!!” (see where I’m going chaps?)

  • Rick says:

    This makes uncomfortable reading.

    These schemes would not have been touched by anyone who had a choice, I would suspect. Such financial penalties as are suggested in the article would ruin lives.

    Were the schemes illegal at the time ? If it requires coverage in a new Bill, that suggests ‘no’. Retrospective rules should never be an option. A person or entity who is conducting their affairs legally at the time should not be penalised retrospectively because the government decides they don’t like it.

    If anyone should be ‘gone after’, perhaps it would more properly be the scheme operators, but only if what was done was illegal at the time it was done.

    The commenters who support retrospective rules would feel differently if the tax man decided to change the rules on them and demand thousands of pounds in back tax. But it’s fine if it’s someone else, it seems.

    • Chris Northcott says:

      Those who support the loan charge miss the point. Rules/measures/laws should not be retroactive. Why not? Because citizens cannot be expected to guess what the future legislative framework will be.
      Try this … the government decides to 70 mph speed limit isn’t working “as intended”. So they decide to change it to 65 mph. So far, so good. But then they say anyone who has travelled between 65 mph and 70 mph has to pay a “speeding charge”. Like it?

  • Margaret Gould says:

    I find it incredible that any freelance contractor would enter into such a scheme without realising that it is a form of tax avoidance. So no sympathy there. If it sounds to good to be true, then it probably is. However, the article is correct in suggesting that HMRC use a softer approach in collecting retrospective taxes, there is really no gain or benefit to any organisation or individual by excessively harsh penalties.

    • Manny says:

      Margaret, how can you call this a Tax avoidance scheme when this was legal. There was no law in the first place and hence this tax loophole was identified. Once a rule becomes a law then it needs to be enforced. I believe this is just a stupid idea of punishing ones for doing something which was absolutely legal few years back. I think the MP’s needs to seriously think about this. Do you have a good enough reason as why this needs to be back tracked from 1999 and not 1000BC. Doesn’t make any logical sense at all. I guess we are running short of cash and the only way is this. We have all lost it now.

  • Mrs. Elena Gilbert. says:

    Dear Sir/Madam, Do you need a loan to consolidate your debt? Are you in need of a loan to finance your business? We offer secured loans or funds to individuals and companies at lower interest rate of 2%. Feel free to contact us via; email ( ). Waiting for you reply as soon as possible.

    You can also text or call +12512704243
    Sincerely, in the service.

    Mrs. Elena Gilbert.
    Advertising agent.
    Jameson Financial Services, Inc

  • My Quick Loan says:

    thanks for the information and posts

Leave a Reply

Your email address will not be published.

★ ★ ★ ★ ★

Very pleasant. Excellent price for what I needed. I will be a returning customer.

Rhino Review

Mr Paul D

Great staff. Customer focused and a team who recognise and understand their customers 100%.

Rhino Review

Vijay S

Fantastic accountants who helped me submit my last 2 years personal tax returns! I really rate this company!!!

QAccounting Review


Fantastic service.

Rhino Review

Marco G

Been with QAccounting for several months now, very good service, very personal and the best prices I have seen.

QAccounting Review

Muhammed A

I switched over to QAccounting a few months ago and haven't looked back. I get to speak to my own client manager and accountant, the prices were the best I had seen, and I paid exactly what it said online (no extra costs). Very happy with QA.

QAccounting Review

Jeremy H