The Summer Finance Bill (once passed later this year) will likely contain tough new anti-tax avoidance measures such as the 2019 Loan Charge.


There are tens of thousands of scheme users who (knowingly or unknowingly) received contractor loans from scheme promoters over several years and these remain outstanding.


These users are understandably now concerned about the potential impact of this new charge. Accepting there is a further public consultation about the finer detail still to happen, we hope to try and answer some of your questions based on what we know at this time (July 2017).

1. Did I receive contractor loans?

If you used a high returning scheme (retaining 85% + of your contract value) it is likely you were receiving contractor loans. It is possible that fact wasn’t mentioned by over-eager sales agents working on commission so check any documentation you received for references to loans or other substitute terminology like “profit share” or “credit facility.” See also answer to Q5 below.

2. Were they loans? I thought it was my money?

Only the parties who entered into the loan agreement know the true intentions and intended outcomes. However, many of the contractors we spoke to have no intention of repaying the loans on the basis it is their money so why would they repay it. This is also why HMRC have cracked down so hard on contractor loans.

3. Why did they make loans to me?

That is how you receive the high level of tax efficiency. A genuine loan (for example a bank mortgage) is not income as in future there is an expectation the debt is repaid, so no income tax. A tax barrister likely advised your promoter payments in the form of a “loan” can’t be taxed as income.

4. I did receive loans, but how do I find out the status of them?

Contact your promoter(s) if they are still around as many of them have since disappeared. However don’t assume the loans have also gone. Many schemes transferred the right to recall the loans in future into a Trust so even if the lender has disappeared, the party you are indebted to (and thus the loan) will likely still exist.

5. I never signed the loan agreement, does that mean the charge won’t apply?

If there is no signed agreement then it is hard to argue it was a loan, therefore they would be classed as an income and thus taxable.

6. Do HMRC know I received loans?

That depends on a few aspects about you/ the scheme, for example;

  • If you were employed/paid loans by the promoter AND you paid little/no interest on the loans, a P11D should have been filed by them which states the total amount of loans.
  • If you recorded the amount of the loans received on your tax return(s), then obviously HMRC will know from that.
  • If your promoter ran a DOTAS scheme, the particulars of all users were disclosed to HMRC, so even if they don’t know the exact amount of loans, they should know you received them.

7. I understood the loans just got written off so surely they aren’t outstanding?

What you probably weren’t told was under current tax, the writing-off a loan creates a substantial taxable event for the borrower.

8. When I pay the tax to HMRC, is that the end of this nightmare?

Not necessarily. Paying additional tax doesn’t mean the loans cease to exist. It is possible that any third party who holds the right to recall the loans in future could still do so in line with the stated terms and conditions.

9. I’m worried – what are my options?

Firstly, don’t panic as there is plenty of time to draw up an action plan. Think about;

  • Is there a tax agent/advisor you trust to act in your best interests?
  • If you have the funds, it can be a good strategy to proactively engage HRMC and discuss the possibility of paying the tax either in one hit or over an agreed timeframe.
  • If your promoter is not around, dig out any agreements or promotional literature from them to better understand their scheme. Surprisingly few users knew at the time about how it worked and may now regret that.
  • There are short term measures to manage down the future impact such as Certificates of Tax Deposits which can limit the amount of interest due on the tax payment.

The above list is not exhaustive but merely a starter for ten. The right option depends on your own circumstances and preferred outcome. One thing is clear though – doing nothing is not a viable option as we expect HMRC’s intention to collect as much tax as possible will intensify in the coming months and years.