The Loan Charge And Disguised Remuneration: Your Appeal And Settlement Options

If HMRC is chasing you over a loan scheme, the worst thing you can do is ignore the letters—and the second worst is to assume they all work the same way. They do not.

If HMRC Is Chasing You Over A Loan Scheme, Start Here

Hundreds of thousands of people were paid through contractor or employee loan schemes. Many were placed into them by an agency, an umbrella company, or a recruiter as a condition of getting the work. They were told the arrangement was compliant, often with a glossy "QC-approved" letter to back it up. If that describes you, you did not set out to dodge tax, and nothing in this article assumes you did.

The loan charge became one of the most contested measures in recent tax history. After sustained criticism, the government commissioned an independent review by Ray McCann, which reported on 26 November 2025 and led directly to the new settlement scheme described later in this article.

Now to the practical part. "The loan charge" is often used as a single label for three quite different bills, and each has its own rules about what you can challenge. You may be facing one of them, or all three:

• Tax on the underlying years—HMRC says the money you received was really pay, and assesses the tax for the years you received it.
• The loan charge itself—a separate, free-standing charge on loans that were still outstanding on 5 April 2019.
• Accelerated payment notices (APNs) and follower notices—demands to pay up now, which you cannot appeal to the tribunal at all.

This article explains each one, what is and is not appealable, the reliefs you may already qualify for, and the new settlement opportunity that became law in March 2026. Around 45% of people who appeal to the tax tribunal represent themselves, so it is written for you to use without a tax adviser—though for sums this large, professional help is worth seeking if you can.

What HMRC Means By "Disguised Remuneration" And The Loan Charge

The phrase "disguised remuneration" describes a simple idea. You did the work. Instead of being paid a normal salary, the money went to a third party—usually an offshore trust. The trust then "lent" the money back to you, on terms that meant the loan was never realistically going to be repaid. On paper it was a loan; in reality it was your pay, dressed up as something tax-free.

HMRC's position is that the money was always your earnings, and tax was always due on it. The leading authority is the Supreme Court's decision in RFC 2012 plc (in liquidation) (formerly The Rangers Football Club plc) v Advocate General for Scotland [2017] UKSC 45—the "Rangers" case. Lord Hodge, giving the judgment of a unanimous court, held that where an employer redirects an employee's earnings to a third party, the money is still taxable as the employee's earnings. The employee does not need to receive it personally, or even have a right to receive it, for it to be taxed as pay. This redirection-of-earnings principle is the foundation of everything that follows.

The detailed rules sit in Part 7A of the Income Tax (Earnings and Pensions) Act 2003, headed "Employment income provided through third parties." The gateway provision is section 554A. What makes Part 7A so wide is the test in section 554A(1)(c): it bites where a "relevant step" is taken "in connection with" your employment. That is a broader test than the ordinary one for taxing earnings, which asks whether a payment was "from" employment.

How readily Part 7A catches these arrangements was confirmed recently in HMRC v Marlborough DP Ltd [2024] UKUT 98 (TCC). A dentist's company paid into a remuneration trust, which then lent money to the director. The Upper Tribunal held that a "strong and close nexus" between the loan and the employment was enough for Part 7A to apply—even where the money could not be said to be "from" the employment in the narrower sense.

The Loan Charge

The loan charge is a separate creature. It was introduced by section 34 and Schedules 11 and 12 of the Finance (No.2) Act 2017—and note that is the Finance (No.2) Act 2017 (chapter 32), not the ordinary Finance Act 2017.

The loan charge works by treating any disguised-remuneration loan that was still outstanding at the end of 5 April 2019 as a fresh "relevant step" taken on that date—and therefore as taxable income in the 2018/19 tax year. Schedule 11 covers employees; Schedule 12 covers the self-employed. The effect is that decades of loans could be stacked into a single year and taxed all at once, at 2018/19 rates.

The crucial feature—and the one most people misunderstand—is that the loan charge is free-standing. It does not depend on whether HMRC ever opened an enquiry into the years you took the loans. It can apply even if those years are closed and HMRC can no longer assess them directly. That cuts both ways, as the next section explains.

The Three Different Bills (And Why It Matters Which One You Have)

This is the most important section in the article. Read your HMRC letters carefully, because the appeal rights are completely different depending on which bill you are looking at.

The underlying-year tax is normally assessed in one of two ways. If HMRC opened an enquiry into your self-assessment return under section 9A TMA 1970, it ends with a closure notice you can appeal—see our guide to HMRC enquiries and closure notices. If there was no open enquiry, HMRC may instead raise a discovery assessment under section 29 TMA 1970, which has its own validity hurdles—see our discovery assessments guide. If you were the employer, HMRC recovers unpaid PAYE through a regulation 80 determination and the National Insurance through a section 8 NICs decision. All of these are appealable to the tribunal within 30 days.

The loan charge is different because it arises automatically on the 5 April 2019 balance. Three consequences follow, and they trip people up constantly:

• Winning or closing the underlying years does not automatically remove the loan charge. They are separate charges with separate legal bases.
• The loan charge does not reopen closed years. It is a 2018/19 charge, not a back-door reassessment of the old years.
• Because it applies by operation of law, there is no general "appeal the loan charge" in the way you appeal an ordinary assessment. What you can appeal is any penalty for failing to report the outstanding loans (the reporting duty sits in Part 3A of Schedule 11 and the equivalent in Schedule 12), and any assessment HMRC raises to collect it.

APNs and follower notices are the third category—and the trap. Here is the quickest way to tell you are holding one: an appealable assessment or penalty always sets out a right of appeal to the tribunal, usually within 30 days. An APN or follower notice does not—it demands payment now, or tells you to abandon your position, and offers no tribunal appeal at all. That absence is the tell. The single most dangerous mistake here is thinking you can "appeal" one, so they get their own section next.

APNs And Follower Notices—The No-Appeal Trap

If HMRC has sent you an accelerated payment notice (APN) or a follower notice, stop and read this carefully. Neither can be appealed to the tax tribunal. This is not an oversight—Parliament deliberately removed the right of appeal.

An accelerated payment notice is a demand to pay the disputed tax up front, while the underlying dispute is still unresolved. It can be issued under section 219 of the Finance Act 2014 where there is an open enquiry or appeal and the scheme was notifiable under the disclosure rules. Your only route is to make written representations to HMRC within 90 days under section 222—for example, that the conditions for issuing the notice were not met, or that the amount is wrong. HMRC then confirms, amends, or withdraws the notice. If you are still unhappy, the only challenge to HMRC's decision is judicial review in the High Court, not an appeal to the tribunal.

The sting is that you must pay the APN even while your representations are outstanding. If you do not, section 226 imposes a penalty of 5% of the unpaid amount, a further 5% if it is still unpaid five months after the penalty date, and a further 5% after eleven months—up to 15% in total.

A follower notice is different again. HMRC issues it under section 204 when a court or tribunal has ruled against a scheme it considers materially the same as yours. It tells you to give up your position—take "corrective action"—or face a penalty. As with an APN, you have 90 days to make written representations under section 207; you cannot appeal the issue of the notice itself.

There is one important nuance. If you do not take corrective action, section 208 charges a penalty of up to 30% of the "denied advantage" (the tax HMRC says the scheme wrongly avoided), reducible for co-operation to a minimum of 10%. That penalty is appealable—section 214 gives you a right of appeal against both the fact and the amount of a section 208 penalty, including on the ground that it was reasonable for you not to take corrective action. So the notice is not appealable, but the penalty for ignoring it is.

How can the individual end up holding the whole bill when the scheme involved an offshore employer? That is what the Court of Appeal addressed in Hoey v HMRC [2022] EWCA Civ 656. Mr Hoey was an IT contractor routed through offshore loan arrangements. The court held that HMRC could use its discretion under section 684(7A)(b) ITEPA to decide that PAYE need not be operated by the offshore employer—with the result that Mr Hoey got no PAYE credit and was left personally liable for the tax. Crucially, Parliament attached no right of appeal to that discretion, so the only challenge is judicial review.

This is where the contrast with ordinary appeals really matters. As our guide to postponing payment during appeal explains, section 55 TMA 1970 may let you postpone paying the underlying direct-tax assessments while you appeal them. But it does not help with an APN—that must be paid—and it does not touch the loan charge, which is free-standing. Do not assume that postponing the underlying assessment buys you time on everything.

The Reliefs You May Already Have (The Morse Review / Finance Act 2020)

Before you do anything else, check whether you already fall outside the loan charge, or qualify for relief, under the changes made after the first independent review (the Morse Review). These are in sections 15 to 20 of the Finance Act 2020.

• Loans made before 9 December 2010 are out of scope. Section 15 removed pre-9-December-2010 loans from the loan charge entirely. If all your loans pre-date that, the loan charge does not apply to you at all.
• A reasonable-disclosure carve-out for 2010–2016. Section 17 reduces the charge where, for years before 2016/17, you made a reasonable disclosure of the scheme on your return and HMRC did not act on it (for example, opened no enquiry). If you told HMRC what you were doing and they did nothing, this may take those years out.

Two further reliefs from FA 2020 are now historic, because their deadlines have passed—but they explain figures you may see in HMRC correspondence:

• The three-year spreading election (section 16) let people split the 2018/19 loan charge equally across 2018/19, 2019/20 and 2020/21. The election had to be made by 1 October 2020.
• The voluntary-restitution repayment scheme (section 20) let people apply for a refund of certain amounts they had already paid for years that were later taken out of scope. Applications had to be made by 1 October 2021.

If you think one of the surviving carve-outs (sections 15 or 17) applies and HMRC has not given effect to it, that is something to raise—both in any settlement discussion and, if relevant, in an appeal against an assessment for the affected years.

The 2025-26 Settlement Opportunity—The Live Route

Here is the most important recent development. Following the McCann Review, a new loan charge settlement opportunity was legislated in sections 25 to 27 of the Finance Act 2026, which received Royal Assent on 18 March 2026 (section 25 is the settlement scheme, section 26 deals with the inheritance tax side, and section 27 is supplementary). So this is now law, not merely a proposal—though the detailed mechanics and full HMRC guidance are still being filled in by regulations and operational guidance as at late May 2026.

According to HMRC's technical note, the headline terms of the settlement are designed to cut bills substantially:

• Recalculation at historic rates. Your liability is recalculated using the tax rates of the years your loans were actually made, instead of stacking everything into 2018/19. For people with loans spread over many years, this alone can be a large reduction.
• A promoter-fee discount. The amount is reduced to reflect the fees you paid the scheme promoter—10% of your gross scheme income up to £50,000, plus 5% on the next £100,000, capped at £10,000 for each year you used a scheme.
• A flat £5,000 write-off for every individual, on top.
• No late-payment interest on the recalculated amount. HMRC estimates this cuts what many people owe by around 20%.
• An overall cap. The total reduction for any one person is capped at £70,000.
• Inheritance tax written off. IHT arising from the trust structures, where it has arisen or will arise within three months of the settlement offer being sent, is written off. Penalties are not charged as standard.

Who is in scope? The opportunity is open to anyone with outstanding loan charge liabilities, including employers. But there are real exclusions, and you should not assume the terms apply to you:

• If you have already paid your loan charge liability in full, you are not eligible.
• If your income came only through disguised-remuneration arrangements that are not caught by the loan charge legislation, you are not eligible, because you do not have "loan charge amounts."
• If all your disguised-remuneration liabilities were already wrapped up in a contract settlement entered into before 1 June 2021, you are excluded—whether or not you have paid. (If you agreed a contract settlement that included loan charge liabilities after 1 June 2021 and have not paid in full, you may still be eligible.)
• Suspected promoters and introducers of avoidance arrangements are excluded.

HMRC began writing to people in scope in stages from early 2026, and intends to contact everyone in scope by the end of the 2027/28 tax year. The letters confirm a named caseworker and explain how the opportunity may or may not apply to your group.

You do not have to wait for a letter—HMRC has said it will prioritise people who come forward. If you are currently paying a loan charge liability under an instalment plan, watch for a separate letter, because in some cases pausing payments allows the new terms to be applied to the largest possible amount.

For how settlement fits into the wider picture of resolving a dispute, see our guide to settling your tax tribunal case.

Settle, Pay The Loan Charge, Or Litigate?

Broadly, you have three paths. For most people in scope of the new opportunity, settlement is the first one to weigh up—but the right choice depends on your figures and your appetite for risk.

Settle under the new opportunity. This means agreeing your liability with HMRC on the recalculated basis above. The attraction is certainty and a substantially smaller bill, with no late-payment interest and any scheme-related IHT written off. The trade-off is that you give up the chance of winning outright at the tribunal—but, as the case law below shows, those wins are rare.

Pay the loan charge as charged. If you are outside the settlement opportunity—for example because you fall within an exclusion—you may simply have to deal with the loan charge as it stands. Time-to-pay arrangements are available.

HMRC's published terms give, for people without the means to pay sooner, a minimum five-year instalment plan if your income is under £50,000, and a minimum seven-year plan if your income is under £30,000. As a rule, instalments are not set at more than 50% of your disposable income, and there is no maximum length for people who genuinely need longer (though more financial detail is required for longer plans).

Litigate. You appeal the appealable parts—the underlying-year assessments, closure notices, or penalties—and take them to the tribunal. This keeps your options open but carries cost and risk, and does not by itself remove the free-standing loan charge.

Whichever route you choose, factor in penalties on the underlying years. Where HMRC says your returns were inaccurate, it can charge behaviour-based penalties under Schedule 24 to the Finance Act 2007 on top of the tax, and these can be a significant percentage of what is at stake. They can be reduced for disclosure and co-operation, and sometimes suspended—and people who were placed into a scheme by an agency or umbrella, and reasonably believed it was compliant, often have real arguments against them. See our guides to HMRC penalties and reducing HMRC penalties. It is also why the settlement opportunity's promise of no penalties as standard is worth weighing.

The cost of delay is real. Interest on unpaid tax currently runs at 7.75% a year, accruing daily—see our guide to interest on unpaid tax. One of the more valuable features of the new settlement is precisely that it writes off late-payment interest on the recalculated amount, which is why settling sooner rather than later can matter.

If You Do Appeal—The Mechanics And The Deadlines

If your dispute involves something genuinely appealable—an underlying-year assessment, a closure notice, a discovery assessment, a loan-charge reporting penalty, or a section 208 follower-notice penalty—the ordinary tribunal machinery applies. Remember that APNs and the follower notice itself are not in this list.

1. Appeal in writing to HMRC within 30 days of the decision. Your notice must state your grounds. For drafting, see our guide to writing grounds of appeal. Already past the deadline? You are not automatically shut out—you can ask HMRC, and then the tribunal, to accept a late appeal, and the tribunal will weigh the length of and reason for the delay against all the circumstances. See our guide to making a late appeal.

2. Consider a statutory review. HMRC may offer one. A different officer reviews the decision, normally within 45 days, and upholds, varies, or cancels it. Review is free and does not stop you going to the tribunal afterwards. See our HMRC internal review guide.

3. Notify the tribunal. There is no fee to appeal to the First-tier Tribunal.

If your appeal is against a penalty for failing to report loans under the loan charge rules, a reasonable-excuse defence may be available. There is no special loan-charge authority on this—the tribunal applies the general four-step test set out in Perrin v HMRC, which our reasonable excuse article and our Perrin case analysis explain in full. People who were placed into schemes by an agency or umbrella, rather than owner-managers who designed their own arrangements, may have stronger arguments that they were not at fault—but each case turns on its facts.

If you lose at the First-tier Tribunal on a point of law—for example, an argument of the kind raised in Hoey about PAYE credits and the section 684(7A) discretion—the onward route is the Upper Tribunal, on points of law only. See our upper tribunal appeal guide.

Where The Courts Have Got To

It helps to know honestly how these cases have gone, so you can make a realistic decision rather than chase a long shot.

The underlying tax is owed. Rangers settled the principle that redirected earnings are still taxable as earnings, and nothing since has dislodged it. Marlborough DP confirms that Part 7A's "in connection with employment" test is broad enough to catch most director and contractor loan-and-trust arrangements.

The individual can be left holding the bill. Hoey established that HMRC can use the section 684(7A)(b) discretion to deny a PAYE credit, leaving the contractor personally liable, with judicial review—not appeal—as the only challenge.

And the constitutional attack on the loan charge has failed. In R (Zeeman & Murphy) v HMRC [2020] EWHC 794 (Admin), two contractors argued the loan charge breached their human rights (the protection of property under Article 1 of Protocol 1 to the European Convention). The High Court rejected the argument: the right was not even engaged, and even if it had been, the charge was a proportionate measure. The same arguments failed in R (Cartref Care Home Ltd) v HMRC [2019] EWHC 3382 (Admin), and the Court of Appeal refused permission to appeal.

None of this means appealing the appealable parts is pointless—facts and figures are often genuinely in dispute, and HMRC's assessments are not always right. But it does mean you should not bank on striking down the charge itself. For most people, the realistic gains are in the settlement terms, in getting the figures right, and in any FA 2020 carve-out that applies—not in a wholesale legal challenge.

Getting Help

For sums this large, getting help is worth it—and some of it is free.

• HMRC's extra-support team—if you are in vulnerable circumstances, tell HMRC. They can change how and when they contact you, and slow things down.
• TaxAid—a charity offering free tax help to people on low incomes who cannot afford an adviser: taxaid.org.uk.
• The Low Incomes Tax Reform Group (LITRG)—clear, independent guidance on the loan charge and the settlement opportunity: litrg.org.uk.

For the current way to contact HMRC about settling, use the GOV.UK disguised remuneration settlement guidance, which carries the up-to-date contact route. The old dedicated settlement phone line that circulated in earlier guidance was withdrawn, so do not rely on a number you find in an out-of-date forum post—go through the official page.

Key Legislation And Resources

Legislation

• Part 7A, ITEPA 2003—employment income provided through third parties (the disguised remuneration regime)
• Section 554A, ITEPA 2003—the Part 7A gateway; "in connection with A's employment"
• Section 684, ITEPA 2003—PAYE regulations and the s.684(7A) discretion (the Hoey point)
• Section 34 and Schedule 11, Finance (No.2) Act 2017—the loan charge (employees)
• Schedule 12, Finance (No.2) Act 2017—the loan charge (self-employed)
• Sections 15–20, Finance Act 2020—Morse Review changes (pre-2010 exclusion, reasonable-disclosure relief, spreading, repayment scheme)
• Sections 25–27, Finance Act 2026—the 2025-26 loan charge settlement scheme
• Part 4, Finance Act 2014—follower notices (s.204, s.207, s.208, s.214) and accelerated payment notices (s.219, s.222, s.226)
• Section 9A, TMA 1970—enquiry into a self-assessment return
• Section 29, TMA 1970—discovery assessment
• Section 55, TMA 1970—postponement of tax pending appeal
• Regulation 80, PAYE Regulations 2003—determination of unpaid PAYE (employer side)

Key Cases

• RFC 2012 plc (Rangers) v Advocate General for Scotland [2017] UKSC 45—redirected earnings are still taxable as the employee's earnings (Lord Hodge, unanimous)
• HMRC v Marlborough DP Ltd [2024] UKUT 98 (TCC)—Part 7A's "in connection with employment" test is broad; a strong and close nexus suffices
• Hoey v HMRC [2022] EWCA Civ 656—s.684(7A)(b) discretion denies a PAYE credit, leaving the individual liable; challenge by judicial review, not appeal
• R (Zeeman & Murphy) v HMRC [2020] EWHC 794 (Admin)—human-rights challenge to the loan charge failed
• R (Cartref Care Home Ltd) v HMRC [2019] EWHC 3382 (Admin)—earlier human-rights challenge to the loan charge also failed

GOV.UK Guidance

• Independent Review of the Loan Charge (the 2025 McCann Review)—final report and government response (26 November 2025)
• HMRC Loan Charge Review — Technical Note—the new settlement opportunity terms
• Disguised remuneration: settling your tax affairs—settlement and time-to-pay terms; current contact route
• Disguised remuneration loan charge—HMRC's main loan charge guidance hub

On This Site

• Postponing payment during appeal—s.55 TMA and why it does not reach an APN or the loan charge
• Settling your tax tribunal case—settle vs litigate and s.54 agreements
• How to appeal to the tax tribunal—the appeal procedure for the underlying assessments
• Late appeal to the tax tribunal—what to do if you have missed the 30 days deadline
• HMRC enquiries and closure notices—s.9A enquiries into the scheme years
• Discovery assessments—the s.29 route where there was no open enquiry
• Writing grounds of appeal—drafting grounds for the appealable parts
• HMRC penalties explained—how behaviour-based penalties on the underlying years are charged
• Reducing HMRC penalties—disclosure, mitigation and suspension of penalties
• What is a reasonable excuse—the defence to loan-charge reporting penalties
• Perrin v HMRC—the four-step reasonable-excuse test the tribunal applies
• Interest on unpaid tax—how interest accrues and why delay is costly
• Upper tribunal appeal—the onward route for Hoey-type points of law
• IR35 and off-payroll working appeals—for contractors facing employment-status disputes
• Tax dispute timeline—where the loan charge, APN and follower notice sit on the roadmap

This article is for informational purposes only and does not constitute legal or tax advice. For advice specific to your situation, consult a qualified tax adviser, accountant, or solicitor.