Key Takeaways
- Who pays the loan charge depends on the arrangement and the employer’s status. The individual borrower reports a disguised-remuneration loan through Self Assessment unless the employer accounts for it through PAYE.
- An employer’s insolvency or dissolution does not automatically transfer PAYE liability to you. HMRC must satisfy the conditions in regulation 72 or 81 of the Income Tax (PAYE) Regulations 2003.
- If your employer did not exist on 5 April 2019, or is not based in the UK, you may need to report and pay through Self Assessment.
- A company director does not owe the loan charge just because they hold office. Section 455 tax on a participator loan is paid by the close company, not the director.
- A director’s loan above £10,000 that is interest-free or below the official rate can create a benefit-in-kind charge. A write-off can trigger income tax.
- Check the notice’s statutory basis, your loan records, any repayments and the employer’s status promptly. Unpaid liabilities can attract interest and penalties.
- Go Legal is rated Excellent with over 300 five-star reviews and 5/5 on Trustpilot and Google, placing our solicitors among the best-reviewed litigation lawyers in England and Wales.
Who Pays the Loan Charge: Employer, Employee or Company Director?
The loan charge is normally an income-tax charge on the individual borrower. However, HMRC may look first to an existing UK employer, and a separate charge can fall on a company where a director borrows from their own business.
The disguised-remuneration loan charge applies to loans made on or after 9 December 2010 that were still outstanding on 5 April 2019. HMRC treats the outstanding amount as employment income received on 5 April 2019 or, in trade-based arrangements, as trade profits for the 2018 to 2019 tax year. The borrower reports it through Self Assessment unless the employer accounts for it through PAYE.
HMRC’s loan charge guidance says an existing UK employer must account for and pay the charge on the individual’s behalf through PAYE. If the employer or former employer is no longer on the companies register, or is not based in the UK, the individual must pay through Self Assessment. HMRC approaches an existing UK employer first, but may transfer the charge to the individual if the employer cannot pay.
| Scenario | Regime to identify | Who HMRC may pursue first | What to check |
|---|---|---|---|
| Employee or contractor loan scheme | Disguised-remuneration loan charge and PAYE | Existing UK employer or individual borrower, depending on the arrangement | Whether the employer operated PAYE and still exists |
| Employer has accounted through PAYE | PAYE settlement | Employer initially | Whether the employer can seek contractual repayment from the worker |
| Director-shareholder loan from their own company | Close-company participator loan rules under section 455 | Company for the company-level charge | Whether the director received a taxable benefit or loan release |
| Loan has been released or written off | Income-tax and PAYE consequences | Depends on the arrangement and recipient | Whether the release creates a separate taxable receipt |
| Employer has dissolved or entered insolvency | Self Assessment or PAYE recovery route | Individual borrower may need to account directly | Employer status and HMRC’s stated legal basis |
| Umbrella company or intermediary arrangement | Disguised-remuneration and PAYE rules | Depends on the intermediary’s status and location | Who employed the worker, operated PAYE and made the loan |
A company director does not become personally liable for the loan charge simply by holding office. The question is whether they personally received, or benefited from, a disguised-remuneration loan. A loan from a director’s own close company is a different matter, governed by section 455 of the Corporation Tax Act 2010 and explained further below.
Can HMRC Recover Loan-Charge Tax From an Employee Instead of an Employer?
Yes, but only through specific statutory routes. An employer’s insolvency, refusal to pay or later dissolution does not automatically make the employee liable for every PAYE-related sum. HMRC must establish the relevant statutory conditions and issue a formal direction.
Regulation 72 Directions
HMRC may issue a direction under regulation 72 of the Income Tax (PAYE) Regulations 2003 to recover unpaid tax from the employee in two situations:
- Regulation 72(3): the employer took reasonable care.
- Regulation 72(4): the employee knew that the employer wilfully failed to deduct tax.
Where a direction is made, it relieves the employer and makes the employee liable for that tax. In practice, a regulation 72(4) direction often turns on what HMRC says you knew at the time, so the evidence about how the scheme was presented to you matters.
Regulation 81 Recovery
Regulation 81 permits recovery from the employee where a PAYE determination under regulation 80 has become final, the tax remains unpaid 30 days later, and statutory conditions about the employee’s knowledge or a notional payment are satisfied.
The two routes interact. Under regulation 80, a determination must not include tax covered by a regulation 72(5) direction, and a regulation 72(5) direction does not apply to tax already determined under regulation 80. That affects which route HMRC can use and what it must show.
National Insurance contributions have a separate legal basis for recovery. They are not automatically transferred by a regulation 72 or regulation 81 direction, so a notice combining tax and National Insurance needs to be read item by item.
What Happens if My Employer Has Dissolved, Gone Insolvent or Moved Overseas?
If the employer did not exist on 5 April 2019, or is not based in the UK, the individual may be required to report and pay the loan charge through Self Assessment because no UK PAYE-responsible employer remained.
The position differs where a UK employer existed on 5 April 2019 but entered liquidation or was dissolved later. The original PAYE responsibility may have rested with that employer. HMRC must then decide whether to pursue the individual under regulation 72 or 81, which requires the statutory conditions to be met, or accept that the liability cannot be recovered. Later dissolution does not, by itself, transfer the liability to you.
Where an employer is insolvent, HMRC’s guidance says the insolvency should be reported to the appointed insolvency practitioner. The employer’s records, liquidation date and PAYE history may all be important evidence.
Umbrella companies and offshore intermediaries commonly dissolved before the loan charge took effect, leaving individuals to report the tax, and HMRC’s guidance confirms the individual reports the charge in these cases. The guidance covers employment-based schemes involving an employer and third-party lender, employed contractors using an intermediary, and trade-based schemes for self-employed individuals and partnerships. The business named in a scheme brochure may not be the employer that was responsible for PAYE.
What Should I Do if My Former Umbrella Company No Longer Exists?
Establish the structure before deciding who pays:
- Check the employment contract and payslips for the named employer.
- Identify which entity operated PAYE.
- Review who advanced or arranged the loan.
- Check the company register and insolvency position, including the dates of dissolution or liquidation.
- Compare those facts with the tax route stated in HMRC’s notice.
- Preserve all records describing remuneration as salary, loan, advance or benefit.
Is a Director’s Loan Account the Same as a Disguised-Remuneration Loan?
No. A director’s loan account and a disguised-remuneration loan are separate regimes with different taxpayers and consequences.
A disguised-remuneration arrangement typically involves an employer, intermediary or third-party lender providing a loan in connection with work. A director’s loan account records money owed between a director and their own company.
The Section 455 Charge
Section 455 of the Corporation Tax Act 2010 imposes a temporary tax charge on a close company that makes a loan or advance to a participator, commonly a director-shareholder, or their associate. The rate is currently 33.75% for loans made from 6 April 2022. The tax is due the day after nine months from the end of the accounting period in which the loan was made.
The charge is paid by the company, not the director personally. It is relieved when the loan is repaid, released or written off, subject to anti-avoidance rules.
Personal Tax for the Director
The director may face separate charges of their own. HMRC’s Employment Income Manual confirms that a section 455 charge on the company does not replace a beneficial-loan charge on the individual.
- Benefit in kind: if the loan exceeds £10,000 and is interest-free or below the official rate, a taxable benefit arises, reported on form P11D. HMRC’s beneficial loan guidance explains the regime.
- Write-off: if the company writes off the loan, the director faces an income-tax charge on the amount released and the company must operate PAYE. This is distinct from the loan charge on disguised-remuneration arrangements.
The government announced in 2026 that it intends to introduce a similar charge on loans from non-UK-resident companies to UK-resident participators, with a technical consultation expected in 2027 and commencement from April 2028. Directors using overseas holding structures should factor this into their planning now.
How Do the Loan Charge Settlement Scheme and Time to Pay Work?
The Employment and Trading Income etc. (Loan Charge Settlement Scheme) Regulations 2026 establish the Loan Charge Settlement Scheme, following the government’s response to the Independent Loan Charge Review. The scheme allows eligible individuals and employers to settle outstanding loan-charge liabilities on revised terms. Eligibility, terms and application timing are set out on GOV.UK and should be confirmed before any offer is accepted.
HMRC’s implementation guidance states that where an employer was required to operate PAYE and still exists, HMRC will generally try to collect the relevant tax and National Insurance contributions from the employer first. Umbrella companies, owner-managed businesses and personal service companies are all identified as possible employers.
An exception may apply where the employer is the individual’s personal service company and the individual is its sole director. The company’s PAYE position and the director’s personal position overlap factually but remain legally distinct.
Individuals who cannot pay a Self Assessment bill in full may apply for a Time to Pay arrangement, spreading the liability over an agreed period. HMRC’s guidance directs people to the loan charge helpline to discuss payment-plan options. An arrangement is negotiated, not automatic, and late-payment interest and penalties may still accrue under the relevant Finance Acts and HMRC guidance.
New PAYE regulations made in 2026 provide for loans to be treated as specified benefits for authorised-employer payrolling arrangements from the 2027 to 2028 tax year. This does not make an employer liable for every historic loan charge.
Our solicitors can represent you in settlement negotiations and First-tier Tribunal appeals where HMRC has pursued the wrong taxpayer or used the wrong statutory route. You can book a free consultation or call 0207 459 4037.
What Common Loan-Charge Mistakes Can Increase My HMRC Exposure?
The most damaging mistake is treating every loan arrangement as the same tax problem. Common errors include:
- Assuming the company pays because the loan came from a company account, when the loan charge is an individual income-tax liability unless the employer operates PAYE settlement
- Confusing a director’s loan account with a disguised-remuneration arrangement
- Treating employer insolvency or dissolution as an automatic transfer of liability, when HMRC must follow regulation 72 or 81 and satisfy the conditions
- Ignoring the precise route identified in an HMRC notice
- Failing to check whether a repayment was genuine and made on or before 5 April 2019
- Treating a release or write-off as a simple cancellation
- Accepting a settlement offer without confirming which liabilities it resolves
- Not taking specialist advice when HMRC issues a direction, assessment or settlement offer, when the facts, legislation and available defences or appeals must be analysed case by case
Where a tax adviser recommended a loan arrangement without explaining the risks, you may also want to read our guide on professional negligence claims against tax advisers.
What Should I Do if HMRC Sends Me a Loan-Charge Assessment or PAYE Direction?
Read the notice as a document identifying a legal route, not simply as a demand for payment. Then work through it in a fixed order so that a genuine liability is separated from an incorrect allocation of tax.
- Identify the tax named: Income Tax through Self Assessment, PAYE-related tax, National Insurance contributions or corporation tax.
- Identify the regime: the loan charge, a section 455 charge, a settlement offer, a regulation 80 determination or a regulation 72 or 81 direction.
- Check whether HMRC addresses you as borrower, employee, director, participator or company officer. Those terms are not interchangeable, and each points to different rules.
- Compare the notice with loan documents, employment records, company accounts and repayment evidence.
- Confirm whether the employer existed on 5 April 2019, whether it operated PAYE, and whether it is now dissolved, insolvent or overseas.
- If HMRC seeks recovery from you personally under regulation 72 or 81, check whether it has shown the required conditions.
- Take advice from a tax disputes solicitor or specialist tax adviser before the appeal or payment deadline in the notice.
- If a liability is due but cannot be paid, apply for Time to Pay promptly while considering whether grounds exist to challenge.
Gather these documents before responding substantively:
- Loan agreements, scheme documents and explanatory literature
- Payslips, contracts and payment schedules
- Bank statements showing loans and repayments
- Evidence of any loan release or write-off
- Correspondence with the employer, umbrella company or intermediary
- PAYE records and tax returns
- Settlement correspondence from HMRC
- Company accounts and director’s loan account records
- Companies House and insolvency records for the employer
Inaction can lead to additional interest, penalties and enforcement, and can make it harder to preserve a challenge. Our solicitors can review assessments, directions and settlement communications through our HMRC tax disputes service.
Frequently Asked Questions
Get Expert Help With Your HMRC Loan Charge Dispute
If HMRC has issued an assessment, a regulation 72 or 81 direction, a settlement proposal or a payment demand, check the statutory basis before accepting liability. Acting quickly helps protect your appeal position and supports any negotiation or Time to Pay arrangement.
Go Legal is a London-based commercial litigation law firm acting for individuals, directors, professionals and businesses across England & Wales. Our solicitors can:
- Review HMRC assessments, directions and settlement communications
- Analyse whether HMRC has identified the correct taxpayer and statutory route
- Review disguised-remuneration arrangements, repayments, releases and write-offs
- Advise directors, shareholders and owner-managed companies on director-loan issues
- Represent you in HMRC settlement negotiations and First-tier Tribunal appeals
