Policy paper

Repaying a disguised remuneration loan to a third party

Updated 9 February 2022

Overview

You may have been contacted by a third party about repaying a loan that you took out through a disguised remuneration tax avoidance scheme.

In most cases, the request for repayment is because the original provider of the loan has sold the outstanding loans to a third party. In some cases, a loan may also be recalled by an insolvency practitioner.

Some of these third parties are now contacting users of the scheme to demand repayment of their outstanding loans – even if users believed they would not be asked to repay the loans. They may have given you the option of making a one-off payment to buy yourself out of the loan arrangement and have the balance written off.

In addition to receiving a demand for repayment you may also:

• have paid the loan charge
• have arranged a settlement agreement with HMRC for the outstanding tax
• be liable to the loan charge, but have yet to pay it

The loan charge was calculated on any loan from a disguised remuneration scheme outstanding on 5 April 2019. If you repaid your loan after that date, the loan charge still applies. HMRC is not able to refund any loan charge that you’ve already paid nor alter a settlement agreement.

We are very concerned to hear about these activities to ask for repayment of loans and understand this may be distressing for those affected.

HMRC is the UK government’s tax, payments and customs authority. HMRC is not responsible for financial regulation. The Financial Conduct Authority (FCA) is the conduct regulator for around 51,000 financial services firms and financial markets in the UK. The Financial Ombudsman Service settles complaints between consumers and businesses that provide financial services, although its jurisdiction will usually only extend to firms regulated by the FCA.

The government is unable to intervene in a dispute between two private parties over loan contracts. Any such dispute should be resolved through the courts in the normal way without government interference.

However, we have set out:

• some guidance for individuals affected by this, including actions you can take to protect yourself
• other organisations you may wish to contact

What a repayment request might look like

You may have received:

• a letter asking for details of your loans
• a request for repayment of your loans and/or payment of interest on your loans
• a statutory demand for you to repay your loans

What you need to do now

This is a complex area of tax and you should get independent legal advice from a professional with the relevant experience and knowledge, including of disguised remuneration and commercial law.

If you have received a Statutory Demand, you should be aware that there are time limits for challenging it. You can find more information about how to challenge a Statutory Demand and the time limit for doing so. Make sure you respond before the deadline as missing it may mean that the loan becomes repayable.

You should check your paperwork to find out if you have a legal liability to repay the loan to the third party or could take action against those who provided or are recalling the loans. If you can, contact the original provider of the loan to confirm the terms of the loan agreement. A group of affected individuals have had recent success in challenging requests for repayments at the High Court in Adams & Ors v FS Capital Ltd & Ors.

When checking the validity of the request, you should look at:

• who the request is from and if they have the right to request that you repay the loan. Did it clearly state that you’d have to repay the loan? If so, do you have any other evidence to suggest the loan was not repayable and were you told anything different at the time any loans were made?

• whether the loan agreement is unenforceable because the original lender, or any third party the lender has transferred the loan to, is not properly authorised under the Financial Services and Markets Act 2000, or because the lender has not complied with the Consumer Credit Act 1974 (CCA). Unless subject to certain statutory exemptions, the lender and any third party seeking to recover the debt must:

  • be authorised by the FCA
  • hold the appropriate FCA lending permission

  The loan will be unenforceable if the original lender was not authorised with the appropriate FCA lending permission. Any third party the original lender has transferred the loan to that is seeking to recover the debt from you without the appropriate FCA lending permission or exemption would be acting unlawfully. You can check a firm’s authorisation status and regulatory permissions using the Financial Services Register: register.fca.org.uk. If the lender has not complied with the CCA, it is up to the courts (not the government or the FCA), to decide whether to allow enforcement of the loan.

• whether trust law could be relevant in your case as loans subject to recall may have been issued by trusts - trustees are required to comply with certain duties under trust law (including the duty to act in the best interest of beneficiaries) as well as complying with the terms of the trust instrument

If you have evidence that there was no intention as part of an agreement you entered into to repay the loan, you may be able to take your case to the Financial Ombudsman Service, but you should first check if the firm falls under its jurisdiction. The Financial Ombudsman Service website explains how to do this.

You can also contact the regulatory authority from where your letter originated, if you think that the lender who is requesting repayment:

• is based abroad, and you think the request is not valid
• did not follow professional standards

The following regulatory authorities may be helpful:

• Jersey Financial Services Commission
• Guernsey Financial Services Commission
• The Channel Islands Financial Ombudsman
• Isle of Man Financial Services Authority - this organisation has also published information on loans to contractors – demands for repayment

If the company recalling your loan is contacting you via a solicitor and you are concerned about the behaviour of the solicitor, for example if you think they have behaved dishonestly or taken unfair advantage of someone, you may wish to visit the website of the appropriate authority to see how to raise a concern:

• Solicitors Regulation Authority, for England and Wales
• The Law Society of Scotland
• Law Society of Northern Ireland
• Isle of Man Law Society