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Addressing the Loan Charge with a Judicial Review

Introduced in the Finance Act 2016, the Loan Charge is a tax charge on any outstanding loans deriving from the use of disguised remuneration (DR) schemes. 

DR schemes usually involved the remuneration of individuals (directors/shareholders or their family members) through third party loans or payments, which were then unlikely to be repaid.  

Designed as tax avoidance schemes, any such loans taken after 5 April 1999 and not repaid by 5 April 2019 were treated as taxable income retroactively – a decision met with anger by taxpayers and tax specialists alike. 

Despite public backlash, HMRC remained firm and outlined that affected taxpayers must repay outstanding loans in full or agree settlement terms with HMRC, if they wanted to avoid the Loan Charge. 

Judicial Review with Nathan Talbot
If neither options was taken, then taxpayers were advised by HMRC to report and pay the Loan Charge.

Consequences of the Loan Charge review
Following mounting pressure, the Chancellor commissioned a review into the Loan Charge to consider if the policy was an appropriate way of dealing with DR loan schemes. 

Led by Sir Amyas Morse, the review was completed at the end of last year, and recommended the following: 


  • The Loan Charge should not apply to loans entered into before 9 December 2010: 
  • Unprotected Years arising from loans entered into on or after 9 December 2010, where the taxpayer had made reasonable disclosure of their scheme usage to HMRC and HMRC did not open an investigation, should be out of scope of the Loan Charge
  • HMRC should refund the Voluntary Restitution elements of settlements made since 2016 that were paid to settle Unprotected Years when the relevant loans were entered fell into one of the recommendations above.

Once the recommendations were approved by the government, draft legislation was implemented in late January 2020. Subsequently, the Finance Bill was passed and the HMRC published related guidance on the same day. 

Whilst the Finance Act 2020 deals with circumstances where settlements have been agreed with HMRC for loans no longer “caught” by the Loan Charge, it does not address situations where individuals have taken steps to repay outstanding loans in reliance on HMRC’s guidance and in fear of the Loan Charge.

Judicial Review

Allowing the courts to examine decisions made by public bodies, like HMRC, Judicial Review ensures those in positions of trust are acting lawfully. 

On the application of a party with sufficient interest in the case, the court will conduct a review of the process which HMRC followed to reach its decision and assess whether or not that decision was validly made.

There are four grounds on which a Judicial Review can be pursued, including illegality, irrationality, procedural unfairness and legitimate expectation.

After complying with the pre-action protocol for Judicial Review, the taxpayer may be forced to issue proceedings. The claim form must be issued no later than three months after the relevant decision and accompanied by various documents. 

The Court will then consider and assess the Judicial Review and decide whether to permit or refuse the claim. 

Proceed with caution…

Some taxpayers have benefited from the Review and amendments made to the legislation by the Finance Act 2020. However, those who have repaid their DR loans following HMRC’s guidance will feel they have not been protected. 

For those taxpayers who followed the process outlined by HMRC, they now find themselves in a worse position, with vital funds stuck in their trust, with fees accruing. 

With any method of extraction resulting in further tax liabilities, Wright Hassall’s Judicial Review is in place to challenge HMRC’s current position and address ongoing issues. 

Speedy Fit Park House

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