What is a HMRC Loan Charge

The HMRC (Her Majesty’s Revenue and Customs) loan charge is a tax measure implemented in the United Kingdom aimed at tackling what HMRC views as tax avoidance schemes involving disguised remuneration.

Disguised remuneration schemes are arrangements where individuals receive payments from their employers in a form other than salary or wages, often in the form of loans. These schemes were often marketed as a way to minimize tax liabilities. However, HMRC considers these schemes as tax avoidance because they involve manipulating the tax system to reduce the amount of tax owed.

The loan charge was introduced to address this issue by taxing the outstanding loan balances that were part of these schemes as if they were income received in the tax years in which the loans were made. This means that individuals who participated in such schemes may face significant tax bills and potential penalties if they did not declare and pay the appropriate taxes on these loans.

The loan charge has been controversial, with critics arguing that it unfairly penalizes individuals who may have been misled into participating in these schemes. In response to concerns raised, the UK government has made some changes to the implementation of the loan charge, including providing options for settlement and payment plans for affected individuals.