What is a disguised remuneration loan charge?
Answered 17 March 2026
Here is a comprehensive explanation of the disguised remuneration loan charge, drawing on the available sources:
What the Law Says
Disguised remuneration (DR) schemes involve individuals receiving their earnings through a small taxable element, with the remainder paid in the form of loans — typically routed through an offshore trust — with the sole purpose of avoiding income tax and NICs. The loans are provided on terms that mean they are not repaid in practice, and the amounts paid by way of a loan are no different to normal income.
Part 7A ITEPA 2003 was enacted with effect from December 2010 to impose income tax and Class 1 NIC charges on arrangements between an employer, employee and a third party to provide rewards in connection with employment, where the third party provided a "relevant step" (including a loan) for the benefit of the employee.
The Loan Charge was introduced by Schedule 11 of the Finance (No. 2) Act 2017. As originally enacted, it provided that where a person had made a loan or quasi-loan on or after 6 April 1999, and an amount of the loan was outstanding on 5 April 2019, that person was treated as having taken a "relevant step" for the purposes of Part 7A ITEPA 2003. The outstanding loan balance on that date becomes an amount which counts as employment income of the employee.
"Loan" is defined broadly to include any form of credit and a payment purported to be made by way of a loan.
HMRC Guidance / Practice
HMRC defines the loan charge as: "A tax charge a person may be liable for if they received a disguised remuneration loan or credit on or after 9 December 2010 where the balance was still outstanding on 5 April 2019, unless tax has been paid in full in respect of the original loans."
HMRC further describes disguised remuneration as "a type of tax avoidance. It involves people being paid for work or services in the form of a loan that is unlikely to ever be repaid. The disguised remuneration loan charge is a charge to tax that's calculated on certain disguised remuneration loans."
In terms of mechanics, HMRC guidance explains that:
- The employer who made the original loan ("B" in terms of s.554A ITEPA 2003) is liable to operate PAYE on the value of the relevant step under s.687A ITEPA 2003.
- If the employer no longer exists on 5 April 2019, the employee must include the value of the relevant step in their Self Assessment return.
- Where a taxpayer has an approved fixed term loan, the loan charge arises on the approved repayment date rather than 5 April 2019, if certain conditions are met.
The 2016 Budget announced the loan charge specifically to tackle DR loans outstanding on 5 April 2019, and a targeted anti-avoidance rule was included to prevent further schemes from circumventing it.
Summary
In short, the disguised remuneration loan charge is a tax charge on the outstanding balance of loans received as part of a tax avoidance scheme (where remuneration was paid as a "loan" through a third party, typically an offshore trust, rather than as taxable income). The charge treats the outstanding loan balance as employment income on 5 April 2019, subjecting it to income tax and NICs.
Citation sources
The introduction of Pt 7A ITEPA 2003 in April 2003 brought in a charge to tax on employment income which was routed through third parties. It also charged disguised remuneration loans to tax where these loans were provided through third parties. These changes only applied to transactions entered into from 9 December 2010. Schedule 11 Finance (No 2) Act 2017 introduced provisions to charge to tax any remuneration which had been provided by a third party in the form of loans which had been made fr
morandum (HLM)pursuant to which LSC Finance Limited (LCS), an entity established in the BVI, as lender, hypothecated “all such sums as may be claimed by HMRC … as falling subject to the provisions of [the loan charge], in respect of [the Appellant]”. The Appellant borrowed £2,946,000 pursuant to the agreement, apparently for repayment of sums originally loaned by OSLRT (the trustee for which was Griffin Trustees Limited (Griffin)). 10. At or about the same date £2,946,000 was paid by LCS at the
A tax charge a person may be liable for if they received a disguised remuneration loan or credit on or after 9 December 2010 where the balance was still outstanding on 5 April 2019, unless tax has been paid in full in respect of the original loans.
ceived part or most of their remuneration in the form of loans or quasi-loans provided by third parties. The typical arrangement was that the loans would be made by trustees of employee benefit trusts, often under arrangements devised by third-party tax avoidance scheme promoters,with the source of funds being the employer. In practice there would be no expectation of repayment, such that the loans were simply part of the employees’ remuneration. The intention of those arrangements was that the
sums covenanted. In EDF Tax, HMRC succeeded in securing an order from the tribunal, under s 314A FA 2004, that these arrangements were notifiable under the DOTAS rules, thereby enabling APNs to be issued by HMRC to scheme participants. 97. Within the 2016 Budget, the Government announced a number of changes to tackle existing avoidance schemes and prevent their future use. The changes were to include a new ‘loan charge’ on disguised remuneration loans which were outstanding on 5 April 2019. To p