Disguised remuneration loan scheme

For many years, various “loan schemes” have been marketed to contractors. With a loan scheme, a very small salary is paid to the contractor and the rest of the money earned by the contractor is loaned. The taxes paid are very low, the fees to the loan scheme promotor substantial. It is now clear that HMRC will chase the tax liability forever. This is a horror story with contractors entering into schemes which are well marketed as tax approved schemes but in reality, has resulted in contractors being chased by HMRC for massive amounts of tax liability.

These schemes are a tax bomb waiting to go off in future years and some contractors have lost their homes raising the funds to clear their tax liability. Many more contractors went into such schemes after the off-payroll public sector rules came in April 2017. They look like employment schemes so fooled the public sector organisation.

Cogent does not deal with the settlement with HMRC as this is a highly specialised area, however, we are happy to speak to you and explain the dangers of using such schemes in the future.


HMRC now have a new “Disguised remuneration loan scheme” legislation to use.

The Loan charge will apply to all outstanding disguised remuneration, self-employed and contractor loans were taken out since 1999, unless loans are repaid or a settlement is in progress with HMRC before 5 April 2019 and completed by 31 August 2019.

In the documents, HMRC reveal that more than 20 individuals have been convicted for offences relating to the promotion and marketing of tax avoidance schemes since 2016, who have together received over 100 years of custodial sentences.

HMRC have published several spotlights about disguised remuneration schemes in recent years with this latest document advising that arrangements currently being marketed that claim to avoid the loan charge do not, in HMRC’s strong view, work.

HMRC are warning taxpayers to beware of arrangements or schemes which claim to avoid the loan charge legislation and involve one or more of the following features:

  • They are marketed from an offshore location such as Cyprus, Malta or Isle of Man
  • They claim that:
    • by entering the scheme, your disguised remuneration loans are paid off
    • the scheme is not disclosable under DOTAS (Disclosure of tax avoidance schemes), and benefit from a QC’s opinion
  • They have professional marketing material, including a website
  • They suggest that disguised remuneration loans can be ‘paid off’ or ‘repaid’ without any real economic consequence, meaning that the scheme user will not suffer any material financial cost

HMRC say “if it looks too good to be true, it usually is” and those who sign up to such schemes are likely to:

  • Pay administration and promoters’ fees that cannot be recovered
  • Remain liable for the loan charge

HMRC strongly advises anyone using one of these schemes to withdraw from it and settle their tax affairs.

Here is a case study provided by HMRC:

Gurpreet: 54-year-old IT Consultant from Bristol

  • Gurpreet entered into an employment income tax avoidance scheme which he used in 2009-10 and 2010-11. The scheme was disclosed by the promoter under DOTAS.
  • As part of the scheme, Gurpreet became an employee of a partnership resident in the Isle of Man. The scheme advertised that users could take home 90% of their pay.
  • Gurpreet signed a loan agreement when he entered into the scheme. This meant that he received a monthly payslip showing a lower amount of employment income subject to tax and NICs as well as a loan amount from which no tax or duties were deducted.
  • HMRC received Gurpreet’s 2009-10 tax returns on 28/09/2010. Gurpreet declared £14,200 employment income which was the salary received. He did not declare the additional loan payments which totalled £154,000 for 2009-10.
  • We received Gurpreet’s 2010-11 return on 28/01/2012. Declared employment income for this year was £11,500 which was the salary received. Gurpreet did not declare additional loan payments totalling £191,900 for 2010-11.
  • For both years, Gurpreet did disclose the DOTAS reference number for the scheme on his return.
  • We opened an enquiry into the 2010-11 return on 05/12/2012. We did not open an enquiry for 2009-10 and instead issued a discovery assessment due to the inaccuracy in Gurpreet’s return as a result of careless behaviour.


  • On 13/04/2015, HMRC wrote to Gurpreet to invite him to settle in respect of this scheme as part of the Contractor Loan Settlement Opportunity. Gurpreet did not settle his tax liabilities at this time.
  • Gurpreet expressed an interest in the settlement in January 2018. Calculations were issued on 25/01/2018.
  • The settlement was reached by way of contract settlement on 26/03/2018 for a total £154,000, which included £17,500 interest.
  • Gurpreet had already paid Accelerated Payment Notices in 2015 so the remaining amount to pay was £78,000. This amount was paid in full in April 2018.
  • Instalment arrangements were not put in place and no penalties were charged.

Victor Korman FCA