UK: The Loan Charge 2019 – How Is It Going To Work?

Last Updated: 13 February 2019
Article by Matthew Goodwin

The Finance (No.2) Act 2017 (FA2), given Royal Assent in November 2017 controversially introduced the ability for HMRC to, in effect, go back 20 years to recover unpaid tax on certain trust based tax mitigation strategies.

In very brief summary, the Loan Charge will apply in circumstances where a trust has been established by a company, through which employees have been remunerated by:

  1. A sub-trust being set up in the name of the employee;
  2. Monies being paid into the sub-trust by the employer; and
  3. Monies being "lent" to the employee from the sub-trust, free of any income tax or NIC.

[NB – this is a very simple explanation. For more detail, see some of our earlier articles referenced below]

We have been advising clients on the implication of the Loan Charge prior to Royal Assent – for more detail, see for example:

Below we deal with how HMRC intends to implement the Loan Charge, looking at who has obligations in light of the legislation and consequences of default.

How it will be calculated

Pursuant to the legislation, the Relevant Date for most individuals with outstanding loans will be treated as being 5 April 2019 – being the date at which the Loan Charge legislation bites down. This means that unless the tax payer has agreed an appeal, some form of settlement or the loan is a fixed term loan, then all recipients of loans from trust based schemes will be treated as if the loan had been paid to them as income on 5 April 2019 – i.e. within the 2018/19 tax year.

The value applied to the tax calculation at the Relevant Date is the full amount of the outstanding loans owed to the trust by the employee, including any notional or actual interest that has accrued on the outstanding loans.

How should it be notified

The onus on reporting an outstanding loan falls on the employee – the recipient of the loans. If the employee has died, the onus is on the personal representatives to ensure that everything is properly reported. The legislation sets out that outstanding loans must be reported to HMRC before the end of 30 September 2019 (except where settlement terms have been agreed with HMRC before that date).

The report must set out at least the following (for more details see Schedule 11, paragraph 35D of the Finance No2 Act 2017):

  1. Employee's details (or if deceased, personal representative's details) and all contact information;
  2. Employee's tax details (national insurance number, unique taxpayer reference etc.);
  3. Company's name;
  4. Information about the loans;
  5. Value of outstanding loans; and
  6. If applicable, any DOTAS (disclosure of tax avoidance schemes) number that has been allocated to the specific scheme.

If an employee fails to provide the above information by the end of 30 September 2019, they will be liable to a penalty of £300, plus further daily penalties of up to £60 a day (for up to 90 days) for as long as the information is not provided.

If inaccurate information is provided to HMRC, and HMRC considers that inaccuracy to be the result of careless or deliberate behaviour, a further penalty of up to £3,000 can be applied. Such a penalty would be payable for each inaccuracy.

There is also an obligation on the employee and trustees to provide information to the employer company, so as to allow it to make appropriate provisions for payment to HMRC.

Applying to PAYE

As set out above, at the Relevant Date (5 April 2019) the outstanding loans will be treated as income of the employee, paid on 5 April 2019. To facilitate this, the employer is required to take the necessary steps to pay the income tax and NICs due on the outstanding loans through its normal PAYE procedure. This step must be taken pursuant to the usual timeframes – i.e. the liability must be paid to HMRC no later than 21 April 2019.

How much will be due?

The rate of tax payable will depend on the level of the outstanding loan and the balance of other income taken in the last 12 months. The easiest way to treat this is to consider what tax would be payable if you had received a bonus in the sum of the outstanding loan on the Relevant Date, and been taxed accordingly (albeit without receiving the actual bonus).

What if the employer can't pay?

In circumstances where the employer is not in a position to make good the income tax and NICs due to HMRC – for example, if the company is insolvent or simply doesn't have the necessary cash available – then HMRC will pursue the individual employees by making a Regulation 80 and 81 Determination. This has the impact of attaching the liability to the employee directly.

Where the company no longer exists, the employee is expected to file a self-assessment tax return with the outstanding loan amount set out therein.

A final warning

Even though the liability for the income tax and NICs falls at the feet of the employer at first instance, it is incumbent on the employee to be able to make that good. If they are unable to, then the payment of the income tax and NIC will be treated by HMRC as a further benefit. The employee will be subject to income tax and class 1 NICs on that sum accordingly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions