Introduction
HM Revenue & Customs (HMRC) has issued a policy paper describing its revised approach to settling outstanding liabilities for individuals and employers affected by the loan charge. The document follows the government’s response to recommendations from an independent review, which proposed significant changes to the treatment of historical disguised remuneration schemes.
The new settlement process aims to provide affected taxpayers with clarity and, for many, substantial reductions in their tax liabilities. HMRC is now contacting impacted taxpayers to explain the implications and next steps under the new framework.
Background to the Loan Charge Review
The loan charge was introduced to address tax avoidance through disguised remuneration schemes, where payments were made to individuals in the form of loans that were not intended to be repaid. Concerns raised by taxpayers and professionals led to a government-commissioned independent review, conducted by Ray McCann. The review concluded towards the end of 2025, and the government subsequently accepted nearly all recommendations, with some measures going further than those proposed.
The Autumn Budget 2025 formally announced the government’s acceptance of the majority of the review’s recommendations. HMRC then published further operational guidance, detailing how it would engage with those affected and implement the revised settlement opportunity.
Key Features of the New Settlement Terms
The new settlement terms differ notably from previous arrangements. Firstly, tax liabilities will now be recalculated using the rates applicable in the tax years when the loans were made, rather than the 2019 rates used for the original loan charge calculation. Secondly, taxpayers may receive deductions related to promoter fees, allowing up to £10,000 to be discounted per year during which a loan scheme was used.
In addition, a further fixed reduction of £5,000 will apply, reducing some taxpayers' liabilities to nil. Notably, no late payment interest will be applied under the new scheme, with HMRC estimating this could lower final sums due by around 20 percent for many cases.
Reductions and Payment Arrangements
The maximum total reduction an individual taxpayer can receive is capped at £70,000, inclusive of both tax and interest that would otherwise have been due under the loan charge assessment. Standard penalties will not be applied as part of this settlement process.
Furthermore, any inheritance tax previously arising due solely to the use of loan schemes covered by the settlement will be written off. Where taxpayers are unable to meet the liability in a single payment, HMRC has stated it will consider bespoke payment arrangements.
Who Is Eligible for Settlement
The settlement is open to all individuals and employers with outstanding loan charge liabilities. However, promoters of loan schemes are expressly excluded from claiming these terms for their own tax positions.
HMRC emphasised that the revised process is intended to address the position of users rather than facilitators of the schemes. Employers who used these remuneration arrangements, as well as individuals, may apply for the revised settlement, provided their case remains open and they are not scheme promoters.
HMRC’s Communication with Taxpayers
HMRC began contacting affected taxpayers in early 2025, providing information on whether their arrangements would fall within the scope of the new review and naming a dedicated contact. As the settlement updates have been implemented, further letters are being issued explaining the implications of the review and the process for resolution.
Where cases qualify under the government-accepted recommendations, affected taxpayers will be given the opportunity to settle at a reduced amount. Invitations to participate in the revised settlement process will be sent directly in due course.
Final Summary
The introduction of revised settlement terms by HMRC represents a significant change in the handling of outstanding loan charge cases. The adoption of historical tax rates, removal of standard penalties, and targeted reductions aim to provide a clear path toward resolution for taxpayers who have long awaited certainty. Excluding scheme promoters from these terms underscores a focus on supporting scheme users. Affected taxpayers are encouraged to review communications from HMRC carefully and consider engaging with named contacts to clarify their circumstances.
These ongoing reforms reflect a broader shift towards closing the chapter on historical disguised remuneration schemes and restoring trust in the tax system. For professionals seeking to track developments or manage client cases, digital tax compliance tools such as those available on Pie may assist in staying updated on regulatory changes.
