Loan Charge review launched - A Tax Avoidance Scheme Ends

24th January 2025

An independent review into the Loan Charge was launched on 23 January 2025.

Ray McCann, former President of the Chartered Institute of Taxation, will lead the review
Review aims to bring end to the matter for people affected and is expected to conclude in summer 2025
A new independent review into the Loan Charge has today (23 January) been launched by Exchequer Secretary to the Treasury, James Murray.

Minister Murray has commissioned Ray McCann, former President of the Chartered Institute of Taxation, to lead the new independent review.

The Loan Charge, first announced in 2016, was designed to tackle historical use of contrived tax avoidance schemes that seek to avoid charges of income tax and National Insurance by disguising remuneration as a form of non-taxable payment, typically a loan.

These schemes have existed since at least the mid-1990s and have been considered by the courts. In the most notable case in 2017, the Supreme Court agreed with HMRC that schemes that redirect earnings and ultimately pay them in the form of loans do not succeed in avoiding tax.

In a further decision in 2022, the Court of Appeal confirmed that even where other parties (such as employers or agencies) have obligations to operate PAYE, the liability for income tax is that of the employee.

The government recognises the decisions of the courts and believes it is right that those who did not pay the right amount of income tax and National Insurance are required to resolve their affairs with HMRC.

However, there remain ongoing concerns about the Loan Charge, including the size of liabilities owed by some of those affected and their ability to pay the tax that they owe in a reasonable timeframe.

The new independent review aims to bring the matter to a close for those affected while ensuring fairness for all taxpayers and that appropriate support is in place for those subject to the Loan Charge. Ray McCann will review the barriers preventing those subject to the Loan Charge from reaching resolution with HMRC and recommend ways in which they can be encouraged to do so.

The government's response to the review will be consistent with its approach to closing the tax gap and the fiscal position.

Exchequer Secretary to the Treasury, James Murray said:

Today, we honour our commitment to launch an independent review of the Loan Charge, bringing the matter to a close for those affected while maintaining fairness for all taxpayers.

Ray McCann said:

The controversy surrounding the Loan Charge has for too long acted as a barrier to bringing matters to a close for both the individuals involved and for HMRC.

I was pleased to be asked to help find ways whereby those involved can reach an agreement with HMRC that balances their right to be treated fairly with the expectation of the vast majority of taxpayers who have paid all of the tax and NIC due on their earnings. My review will be entirely directed to that end.

The review was first announced at the Autumn Budget 2024. The reviewer will present their final report to the Exchequer Secretary to the Treasury by summer 2025.

Statement by James Murray MP

At the Budget, the Government announced that it would commission an independent review of the Loan Charge to help bring the matter to a close for those affected whilst ensuring fairness for all taxpayers. Today I can set out further details about the review.

The Loan Charge was intended to tackle historical use of contrived tax avoidance schemes that seek to avoid income tax and National Insurance by disguising remuneration as a form of non-taxable payment (typically a loan). Disguised remuneration schemes have been considered by the courts. In the most notable case in 2017, the Supreme Court agreed with HMRC that schemes that redirect earnings and ultimately pay them in the form of loans do not succeed in avoiding tax. In a further decision in 2022, the Court of Appeal confirmed that even where other parties (such as employers or agencies) have obligations to operate PAYE, the liability for income tax is that of the employee.

The Government believes that it is right that those who did not pay the right amount of income tax and National Insurance are required to resolve their affairs with HMRC. Accepting otherwise would be contrary to the decisions of the courts and would be unfair to the vast majority of taxpayers who have never used these schemes.

However, the Government recognises that concerns continue to be raised about the Loan Charge. In particular, there are concerns about the size of liabilities owed by some of those affected and their ability to pay the tax that they owe in a reasonable timeframe.

I have therefore asked Ray McCann, a former President of the Chartered Institute of Taxation, to conduct a review into the barriers that are preventing those subject to the Loan Charge from reaching resolution with HMRC and to recommend ways in which they can be encouraged to do so.

The objectives of this review are to help bring the matter to a close for those affected; ensure fairness for all taxpayers; and ensure that appropriate support is in place for those subject to the Loan Charge. The full terms of reference for the review have been published here: www.gov.uk/government/publications/independent-review-of-the-loan-charge(opens in a new tab).

The review will commence on 23 January 2025 and I have asked Mr McCann to present his final report to me by Summer 2025. I will provide a further update to the House after I have received that report.