Policy paper

Terms of Reference - Independent Review of the Loan Charge

Updated 23 January 2025

1. Introduction

The Exchequer Secretary to the Treasury has commissioned an independent review of the Loan Charge.

Disguised remuneration schemes have been considered by the courts. In the most notable case in 2017, the Supreme Court agreed with HMRC that schemes that redirect earnings and ultimately pay them in the form of loans do not succeed in avoiding tax. In a further decision in 2022, the Court of Appeal confirmed that even where other parties (such as employers or agencies) have obligations to operate PAYE, the liability for income tax is that of the employee.

The Loan Charge was announced at Budget 2016 and introduced into law through Finance (No.2) Act 2017. Its purpose was to tackle historical use of contrived tax avoidance schemes that sought to avoid income tax and National Insurance by disguising remuneration as a form of non-taxable payment (typically a loan).

The government believes that it is right that those who did not pay the right amount of income tax and National Insurance are required to resolve their affairs with HMRC. Accepting otherwise would be contrary to the decisions of the courts and would be unfair to the vast majority of taxpayers who have never used these schemes.

Following concerns expressed by Parliamentarians and others, the previous government commissioned an independent review of the Loan Charge in 2019, led by Lord Morse.

However, the government recognises that concerns continue to be raised about the Loan Charge and some feel strongly that it has not been handled appropriately. The aim of this review is to provide a fresh perspective on the matter. It is also an acknowledgement that this issue has not been brought to a close and there are ongoing concerns that warrant further scrutiny.  

While the review is being conducted, the legislation giving effect to the Loan Charge remains in force.

2. Objectives and scope

The overarching objectives of the review are:

• Bringing the matter to a close for those affected;

• Ensuring fairness for all taxpayers; and

• Ensuring that appropriate support is in place for those subject to the Loan Charge. 

Drawing on work undertaken by the Low Incomes Tax Reform Group, TaxAid, and others, this review will examine the barriers preventing those who are subject to the Loan Charge but have not already settled and paid their tax liabilities in full from reaching resolution with HMRC. It will recommend ways in which they can be encouraged to settle with HMRC.

The reviewer is being asked to draw on the available evidence and expertise, engaging with stakeholders as appropriate, to consider in detail:

• The settlement terms available to those who are subject to the Loan Charge who have not yet settled and paid their tax liabilities in full to HMRC and whether HMRC’s settlement and debt management processes sufficiently take into account their ability to pay and behaviours;

• How that population could now be encouraged to reach resolution with HMRC; and

• What decisions would be required to ensure that, as far as possible, any new settlement proposals were properly targeted whilst not imposing significant additional administrative burdens upon HMRC.

The review is specific to the Loan Charge and will not consider uses of disguised remuneration schemes that are outside its scope. That is, the review will only consider disguised remuneration scheme use between and including 9 December 2010 and 5 April 2019 that is in scope of the Loan Charge legislation (Schedules 11 and 12 to the Finance (No.2) Act 2017). It will consider both outstanding Loan Charge liabilities and the related outstanding liabilities arising from the underlying income received via this use of disguised remuneration schemes.

3. Timing and recommendations

The review will commence on 23 January 2025 and the reviewer will report and present their recommendations to the Exchequer Secretary to the Treasury by Summer 2025.

The review’s findings and recommendations will be published in a report. The reviewer will have the final say on what is included in that report. The timing of its publication will be determined by the Exchequer Secretary to the Treasury.

The government will consider the review once concluded and publish a response by Autumn Budget 2025.

4. Leadership, structure and ways of working

The reviewer, Mr Ray McCann, has been appointed by the Exchequer Secretary to the Treasury. He will be supported by a team of officials who have not previously worked on this policy area. They will be based outside of His Majesty’s Treasury (HMT) and His Majesty’s Revenue and Customs (HMRC) offices. 

The number of people working on the review, and the amount of their time spent on it, will be agreed between HMT and the reviewer.

It will be for the reviewer to decide what arrangements are needed to engage with stakeholders during the review.

The reviewer is expected to draw upon information and analysis provided by HMT and HMRC during the review. HMT and HMRC must make all possible efforts to support the review team’s work by providing them with any information that they request in a timely fashion unless there is a legal reason not to. Any such reason must be detailed to the review team.

If there is an administrative reason why the information cannot be shared (such as the disproportionate time required to produce it), then the reviewer has the right to raise this issue to the Director of Personal Tax, Welfare & Pensions in HMT, who can then make a final decision, following consultation with HMRC.

The final report will be shared with HMT and HMRC before publication, who may be asked to provide factual comments on it. This will include reviewing the use of any statistics provided by the departments.

Information provided by HMT and HMRC to the review team and factual comments provided on draft reports will be published after the review has concluded. No confidential taxpayer information will be published as part of this.

The review team will publish and comply with its own records management policy.