A Bird in the Hand - Tax Loan Charge and HMRC Settlement Schemes

Aug 26, 2026

Uploaded by Violet

Analysis of HMRC’s approach to tax avoidance schemes, focusing on why the “loan charge” became an unusually harsh remedy for contractors compared with earlier and more lenient settlement opportunities. It contrasts contractor-facing outcomes with the Liechtenstein Disclosure Facility, which offered immunity, waived inheritance tax, reduced fraud limitation periods, and fixed-rate penalties. The document also examines bank and corporate programs such as the HRCP and EBT settlement options, then questions the rationale for the loan charge’s reach and enforcement leverage.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages3

Reading Time8 min

AccessFree to download

A Bird in the Hand

The loan charge vs HMRC settlement incentives

The Liechtenstein Disclosure Facility (LDF) outcomes

High-risk corporates, EBT schemes, and settlement programs

Why contractors faced harsher treatment

A bird in the hand Contributed by Ray McCann CIOT (fellow), ATT, CTA (Fellow) What was it about a loan scheme that was so egregious that it merited an unprecedented and, arguably, cruel remedy? The question is more intriguing given the generous settlement opportunities HMRC have used to incentivise taxpayers who had evaded and avoided tax. It is not easy to reconcile the HMRC treatment of contractors caught by the loan charge with those individuals who had fraudulently evaded tax using secretive offshore jurisdictions, or very large businesses putting eyewatering amounts of corporation tax, PAYE and NIC at avoidance risk through structured tax planning and Employee Benefit Trusts (EBTs) . In truth, by comparison, the settlement opportunities available to contractors offered very little other than time to pay, which you would expect in any event, and aslight saving in liability compared to the amount payable under the loan charge. But if the loan charge was to be avoided, it was also necessary to pay HMRC, as ‘voluntary restitution’, the tax and NIC for any year for which HMRC had failed to open an enquiry even if responsibility for that failure lay with HMRC. Compare this to the Liechtenstein Disclosure Facility (LDF) that ran from 2009 until 2015 and targeted individuals, trusts, and companies that had fraudulently evaded tax using a secretive offshore jurisdiction. Had the LDF been limited to Liechtenstein it might have been possible to say the end justified the means, but LDF terms were open to any UK taxpayer; all that was required was that you held an offshore asset (a holiday home in Spain was enough) and had or would acquire a‘meaningful relationship’ with Liechtenstein. Unless you had a Liechtenstein-based asset then typically this meant opening, for a fee, a Liechtenstein bank account and depositing some cash in that account. One obvious outcome is that an HMRC policy intended to deter the use of secret offshore bank accounts prompted the single biggest expansion in offshore banking since the introduction of the 98% income tax rate and millions was deposited into Liechtenstein accounts as a result, with one Liechtenstein bank opening a branch in London! The LDF terms also meant you enjoyed immunity from prosecution, inheritance tax was waived, the 20-year fraud limitation period was reduced to 10 years, and penalties were charged at a fixed rate (initially 10% and later 20%!) . And this was the norm, not the exception. The waiving of IHT and the shorter limitation period had a devastating impact on the eventual LDF yield; in many cases an unpaid tax liability of millions, perhaps many millions, became a LDF settlement of a few hundred thousand pounds, or less. Later HMRC encouraged individuals with secret assets in Switzerland to also use the LDF. Then there were banks and other large corporates. For decades these had been a thorn in the Revenue’s side. By 2005, HMRC had nothing more than a finger in the Dyke so that year HMRC changed tack, announcing a specific deal targeted at disguised remuneration schemes used by banks. HMRC followed this with the High-Risk Corporates Programme (HRCP) and, in 2011, the Employee Benefit Trust Settlement Opportunity (EBTSO) . I have no doubt that some Chairpeople wilted on being told by HMRC that they were classified as ‘high risk’, with at least one large business receiving a letter from Mr Hartnett, then HMRC’s Director General, telling him‘[they] were HMRC’s highest tax risk rated business’ (it is probably framed!) . But there was an upside to being high risk: access to the HRCP which Public offered a chance to reach agreement with HMRC on a range of contentious issues even if you had to give up some transactions you believed might have succeeded in litigation. With settlements often agreed at breakneck speed and on favourable terms, the HRCP damaged trust in HMRC, prompting suspicion that ‘sweetheart deals’were being done with big business. The 2005 settlement op

FAQs

Why does the document question HMRC’s harshness toward contractors under the loan charge?

It highlights that HMRC’s settlement opportunities elsewhere offered far less than immediate full payment and often included practical reductions in liability and time to pay, making the contractor-focused outcome harder to reconcile.

What benefits did the Liechtenstein Disclosure Facility (LDF) provide?

The LDF offered immunity from prosecution, waived inheritance tax, shortened the fraud limitation period from 20 years to 10 years, and applied fixed-rate penalties.

How did HMRC’s approach differ for banks and high-risk corporates compared with contractors?

The document describes targeted settlement programs (HRCP and later EBT settlement opportunities) where certain tax and NIC liabilities were forgiven under specific conditions and settlement terms could be reached rapidly on favourable terms.

Aug 26, 2026

Uploaded by Violet