Loan charge

Produced by Tolley
Loan charge

The following Employment Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Loan charge
  • Overview of the loan charge
  • What is the loan charge?
  • What amount is taxable?
  • Implications for individuals and employers
  • If the employer is in the UK and in existence
  • If the employer is offshore or not in existence
  • Summary of steps required and deadlines

Overview of the loan charge

In 2017, legislation was introduced to impose a ‘disguised remuneration’ charge upon loans from ‘employee benefit trusts’ (EBTs), ‘Employer-Financed Retirement Benefits Schemes’ (EFRBS) and similar arrangements. This is also known as the ‘loan charge’. It originally applied to any individual who received a loan (with a few limited exceptions) via a disguised remuneration scheme on or after 6 April 1999 that was still outstanding on 5 April 2019, but its scope has been limited following the independent review of the loan charge (see below and the Outcome of the independent loan charge review guidance note).

For an introduction to disguised remuneration, see the Disguised remuneration ― overview guidance note.

This guidance note looks at some of the practical implications of the loan charge for employees and employers and how tax liabilities are to be assessed and reported.

For the practical considerations of ‘contractors’ who were in employment-based umbrella company loan arrangements, see the Low Incomes Tax Reform Group (LITRG)’s guidance.

See also The Chartered Institute of Taxation (CIOT)’s article published on 16 September 2019, which covers the loan charge topic.

In September 2019, the Government commissioned Sir Amyas Morse to lead the Independent Loan Charge Review. Sir Amyas was asked to consider whether the policy is an appropriate response to the tax avoidance behaviour in question and whether the changes the Government has announced to support individuals to meet their tax liabilities have addressed any legitimate concerns raised.

On 20 December 2019, the Government released a copy of the Loan Charge independent review report, containing some considerable changes to the loan charge that are now legislated.

Some of the fundamental amendments are listed below:

  1. the loan charge will now only apply to outstanding loans made on, or after 9 December 2010, as opposed to any from 1999 onwards

  2. the loan charge will not apply to outstanding loans made in any tax years before 6 April 2016 where the avoidance scheme use was fully disclosed to HMRC

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