The loan charge was introduced in 2019 to tackle 'disguised remuneration' schemes, where workers were paid through loans instead of salary to avoid paying income tax and national insurance. If these loans remained unpaid by 5.4.19 they were caught by the loan charge and treated as taxable earnings as a lump sum in 2018-19 meaning that individuals had to declare them and pay the tax through self assessment.

Many affected individuals entered into the schemes in good faith, having been advised by accountants, employment agencies or umbrella companies. Because all outstanding loans were taxed in a single year many people were pushed into higher tax bands, dramatically increasing the amount they owed. For those who had already spent or invested the funds this often meant facing a tax bill far beyond their current income, putting them at risk of bankruptcy, severe debt or even losing their homes.

In January 2025 the government ordered an independent review of the loan charge to address these long-standing issues and offer a fair, affordable route to closure after years of uncertainty. Following its recommendations new legislation will be introduced to create a fairer 'settlement opportunity' for individuals and a small number of employers to resolve their liabilities on more manageable terms.

Those that decide to settle should see their loan charge bills cut by at least 50% with around 30% paying nothing at all. The tax due will be recalculated based on the years in which the income was earned; the new amount will be reduced to account for promoter fees; late-payment interest and penalties will be removed; and the first £5,000 of each person’s liability will be written off. Individuals can also spread payments over five years. For those with larger bills, reductions could reach up to the maximum under the settlement of £70,000.