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2019 loan charge: could you be affected?

Contractors who have previously been paid through disguised remuneration schemes, also known as contractor loan schemes, are being urged to contact HMRC to settle their tax affairs before a new loan charge is introduced from April 2019. We take a look at the sort of payment schemes involved and what contractors should do if they believe they have been involved with one since 1999.

What are disguised remuneration / contractor loan schemes?

Disguised remuneration schemes promise higher take home pay (up to 90%) and minimal tax. They usually involve a loan or other payment from a third party, which is unlikely ever to be repaid. When such schemes are aimed at and used by contractors, they are known as contractor loan schemes. In simple terms, they usually work by paying a very low salary with a high proportion of the income paid out as a loan (less a percentage taken by the scheme operator as their profit). In HMRC’s eyes, this is tax avoidance, plain and simple. They have already pulled the plug on many contractor loan schemes and are actively pursuing back-taxes from those who have used them.

What is the 2019 loan charge?

The 2019 loan charge has been introduced by HMRC to recover unpaid taxes from people who have used a contractor loan scheme since 6th April 1999. Could that be you? If you have used this sort of tax arrangement since that date, you will be required to pay back what you owe by 31st January 2020.

What to do if you have used a contractor loan scheme

It is always worth knocking on HMRC’s door rather than wait for them to come knocking on yours. If you have engaged with contractor loan schemes in the past, HMRC is offering an opportunity to settle any tax you may owe. Approaching HMRC with willingness to work things out may mean that:
  • HMRC will agree to a repayment plan
  • You won’t have to pay the 2019 loan charge
  • You’ll pay less tax on what you owe - your contractor loans will be added together and taxed in one year
  • You won’t face extra costs if the scheme moves to litigation.
Liquid Friday’s Joe Taffurelli said: “We welcome HMRC’s actions. Contractor loan schemes have unfortunately been an aggressive way for some contractors to avoid paying the relevant taxes." "However, HMRC must also recognise that some of these schemes have been very sophisticated with some of the beneficiaries (contractors) never being made aware that this is how they were being paid, as the “fee” retained by the provider can mimic statutory deductions. I recommend that anyone who is unsure if they are affected seeks advice and speaks to HMRC as soon as possible.”


The original deadline to register to use the settlement opportunity was 31st May 2018, but HMRC has extended this, effectively until 30th September 2018. HMRC advises: “To start settling your tax affairs, you should register your interest with HMRC as soon as possible and provide all of the required information by 30th September 2018.”

Update: payment plans based on earnings

As of 18th July 2018, HMRC has updated their payment terms for settlement of disguised remuneration debts.  If your expected current year earnings are less than £50,000 you will be entitled to pay back what you owe in instalments over a maximum of 5 years. To take advantage of this, you must no longer be using any sort of contractor loan or similar scheme. You will also be charged forward interest on instalments, so the shorter the payment plan you agree, the less interest you will pay in the long run.

Be safe not sorry

As always happens with this type of measure, schemes are appearing which claim to circumvent the 2019 loan charge. Don’t be sucked in! HMRC are clamping down hard on all sorts of tax avoidance arrangements. The companies promoting them can make very attractive pledges, but then can disappear overnight, potentially leaving you with a huge tax bill. The answer? Always use an FCSA accredited umbrella company, CIS provider or contractor accountant. Just look out for the orange logo.