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The 2019 Loan Charge

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Posted by Nathan Talbott on 30 January 2018

Nathan Talbott - Financial Disputes Lawyer
Nathan Talbott Partner

The government has this month extended the deadline for registering an intention to settle from 31 May 2018 to 30 September 2018.


For those affected, the Finance (No. 2) Act 2017 contains some of the most significant changes to tax legislation in recent memory (the 2019 Loan Charge).  Some of the clients we have advised in relation to the changes are considering entering into insolvency arrangements for their companies and personally; whilst a number are pursuing their negligent advisers for the losses suffered.



  • Company A is an owner managed medium sized business.
  • In 2002 it has a good year financially and generated £2 million profit before tax.
  • Historically, whatever profit Company A made was distributed by way of dividend.  However, in 2002 Company A’s accountant, Accountant & Co, contacts the directors of Company A to inform them of a more tax efficient manner to extract cash from the business;
  • Accountant & Co recommends Company A implements an employee benefit trust (EBT);
  • Accountant & Co meets with the directors/shareholders of Company A and explain what an EBT is, summing it up as; “a relatively complicated structure – but Company A doesn’t need to worry about the detail”;
  • Company A pays the £2 million to the EBT;
  • The EBT makes loans to the directors/shareholders totalling £2 million
  • The loans are notional and in practice will never be called in;
  • No tax is paid on the £2 million;
  • It sounds too good to be true, but it is not, Accountant & Co have been involved in lots of EBTs and HMRC has never challenged them;
  • The fee is a percentage of the £2 million.

Company A implements the scheme in 2002 and the directors/shareholders forget about its existence.  As a consequence of the new legislation, on 5 April 2019 the 2019 Loan Charge will apply resulting in Company A and the directors/shareholders becoming liable to pay Income Tax (IT) and National Insurance Contributions (NICs) on the £2M loans made to the directors/shareholders.


The above example is a very simplistic explanation of how the 2019 Loan Charge will impact certain companies and individuals.  In short it depicts a common position where an arrangement was entered into over 15 years ago which HMRC has never shown any interest in and the participants have forgotten about.  

However Company A’s EBT will result in a demand from HMRC at some point shortly after 6 April 2019 (likely in this case to be in excess of £1 million).  To put it in some perspective, HMRC anticipates that between the 2018/2019 and 2019/2020 tax years, in excess of £1.8 billion will be raised in relation to the 2019 Loan Charge alone.

The 2019 Loan Charge applies to any disguised remuneration scheme that was entered into on or after 6 April 1999 and involved a loan being made to an employee (whether directly or indirectly such as via family members).  Avoidance schemes have different names and descriptions. The most common structures that will be affected by the 2019 Loan Charge are EBTs and Employee Funded Retirement Benefit Schemes (EFRBS).  However, over the years those structures have been given brand names, such that participants may not know they are involved with an EBT or EFRBS.  

Ancillary implications

The above example is very much at the simple end of the spectrum.  Matters become far more involved for taxpayers where open enquiries exist, interest has been accruing on the outstanding loan and/or accelerated payments have already been paid, to name but a few. 

Even if taxpayers pay all the tax demanded under the 2019 Loan Charge, that does not mean the EBT structure automatically comes to an end, meaning professional trustee fees amongst other costs may continue to accrue on a yearly basis. 

There is an obligation for all those involved in the tax avoidance scheme (the employer, the trustee and the employee) to report its existence to either the employer or HMRC, as dictated by the legislation.  Financial sanctions apply for non-compliance.

What can be done?

Taxpayers have limited options.  A settlement opportunity is available; however, for those that wish to take part, interest must be registered with HMRC by 30 September 2018, extended from the initial deadline of 31 May 2018.  As may be expected, the settlement opportunity does not contain many incentives

There are ways of managing the liability that will arise under 2019 Loan Charge, or dealing with the liability before 5 April 2019, which we can advise on. 

Some professionals have sought to devise schemes to avoid the 2019 Loan Charge, however, HMRC has made their position entirely clear that such schemes do not work (by virtue of recent Spotlights), meaning further cost will be incurred and most likely wasted. 

Aside from managing the liability, it may be the case that the advice received when the scheme was implemented was negligent, e.g. Company A should never have entered into the EBT as it was not appropriate for them.  If that is the case, there may be a professional negligence claim against the advisors associated with the scheme, which we can advise you on and provide funding arrangements where appropriate.


The 2019 Loan Charge is one of the very few examples of HMRC having a retrospective impact on the taxpayer.  For those that have been involved in any form of avoidance scheme, i.e. where they have reduced the amount of tax paid at any particular point by entering into a “scheme”, it would be sensible to check your position and ensure that the 2019 Loan Charge will not impact you.  If it appears likely that it will, advice should be sought.

About the author

Nathan is a member of our tax and financial services litigation team dealing with disputes relating to investments, tax schemes, pensions and HMRC enquiries and negotiations.

Nathan Talbott

Nathan is a member of our tax and financial services litigation team dealing with disputes relating to investments, tax schemes, pensions and HMRC enquiries and negotiations.

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