The Employment and Trading Income etc. (Loan Charge Settlement Scheme) Regulations 2026

Published: Wed 15th Jul 26

Established a formal tax settlement scheme for individuals and employers to resolve outstanding loan charge liabilities and associated inheritance tax issues.

These regulations establish the Loan Charge Settlement Scheme, providing a framework for individuals and corporate employers to settle liabilities arising from certain loans or quasi-loans treated as employment or trading income.

The instrument directs HM Revenue and Customs (HMRC) to identify eligible persons, calculate settlement offers using prescribed methodologies, and manage the collection of settlement amounts as Crown debts.

It applies to taxpayers liable for loan charge amounts under the Finance (No. 2) Act 2017, excluding those suspected of being tax arrangement promoters, and introduces specific inheritance tax exemptions for those who enter into a settlement agreement.

Arguments For

The regulations state that the scheme is established following the government's response to the Independent Loan Charge Review conducted by Ray McCann.
Proponents argue that the scheme provides a structured mechanism for persons liable for loan charge amounts to resolve their tax affairs through formal settlement agreements.
The document implies that the scheme addresses issues of double taxation by requiring Commissioners to remove such instances when determining gross liability.
The order provides for inheritance tax relief, stating that certain unpaid inheritance tax amounts cease to be payable if a person enters into a settlement agreement.

Arguments Against

Legal scholars might question the broad discretion granted to Commissioners under Regulation 6 to use estimation or draw inferences from "arrangements of a similar nature" when determining liabilities.
Affected parties may express concern over the exclusion of individuals suspected of being promoters or introducers, as the criteria for "reasonable suspicion" are not strictly defined.
Civil liberties organizations might point to the condition in Regulation 12 requiring participants to forbear from commencing any future legal proceedings against HMRC regarding the settled amounts.
Critics could argue that the methodology for calculating settlement amounts, particularly the 90-day acceptance window, places significant pressure on taxpayers to agree to HMRC's determinations.

Part 1 General

Citation and commencement

-(1) These Regulations may be cited as the Employment and Trading Income etc. (Loan Charge Settlement Scheme) Regulations 2026.

(2) These Regulations come into force on 5th August 2026.

This section establishes the official title of the regulations and sets the commencement date.

The rules become legally effective on 5 August 2026.

Interpretation: general

In these Regulations-

'additional qualifying amounts' has the meaning given by regulation 12(2);

'assess' means any decision to assess, to amend a return (including a self-assessment), to make a determination, or a decision of a similar nature made by HMRC under an enactment in respect of an amount, and 'assessed' and 'assessment' are to be construed accordingly;

'commencement day' means the day specified in regulation 1(2);

'contract settlement' means an agreement made in connection with any person's liability to make a payment to the Commissioners( 2 ) under or by virtue of an enactment;

'corporate employer' means an eligible person who is neither a relevant earner nor an individual;

'eligible person' has the meaning given by regulation 8(1);

'employee' means the person 'A' in section 554A of ITEPA 2003( 3 ), where a loan or quasiloan under paragraph 2 of Schedule 11 to the F(No. 2)A 2017( 4 ) is treated as a relevant step for the purposes of Part 7A of ITEPA 2003;

'FA 2004' means the Finance Act 2004( 5 );

'FA 2007' means the Finance Act 2007( 6 );

'FA 2009' means the Finance Act 2009( 7 );

'F(No. 2)A 2017' means the Finance (No. 2) Act 2017( 8 );

'FA 2026' means the Finance Act 2026;

'final' means, in respect of an amount-

(a) if the amount has not been assessed, that the period specified by an enactment for HMRC to assess that amount (including the amendment of a self-assessment) has expired; or
(b) if the amount has been assessed (including, where the context requires, if self-assessed and not amended by HMRC)-
(i) the time for any appeal or further appeal relating to it has expired, or that any appeal relating to it is finally determined; or
(ii) a contract settlement is entered into in respect of that amount;

'HMRC' means His Majesty's Revenue and Customs( 9 );

'P' means the person to whom a settlement offer must be made in accordance with Part 4;

'payment on account' refers to any payment on account of a liability to HMRC, whether made voluntarily or under an enactment;

'relevant amount' means the relevant loan charge amounts and specified connected amounts to which a settlement offer must relate under regulation 9(4);

'relevant earner' means an employee or a trader;

'relevant loan charge amount' has the meaning given by regulation 9(4)(a);

'the Scheme' means the Loan Charge Settlement Scheme, established under regulation 7;

'settlement amount' means the amount determined under regulation 10 (step 10 or 11) or regulation 11 (step 9 or 10);

'settlement offer' means an offer made in accordance with Part 4;

'SSCBA 1992' means the Social Security Contributions and Benefits Act 1992( 10 );

'SSCB(NI)A 1992' means the Social Security Contributions and Benefits (Northern Ireland) Act 1992( 11 );

'tax year' has the same meaning as it has in section 4(2) of ITA 2007;

'trader' means the person 'T' in section 23A(2) of ITTOIA 2005, where a loan or quasi-loan under paragraph 2 of Schedule 12 to the F(No. 2)A 2017 is treated as a relevant benefit for the purposes of sections 23A to 23H of ITTOIA 2005( 12 ).

This section provides definitions for the key terms used throughout the regulations.

It defines the different types of taxpayers involved, such as 'corporate employers', 'employees', and 'traders', and clarifies what constitutes a 'final' tax assessment.

These definitions ensure consistent application of the settlement scheme rules across different legal acts and tax years.

Interpretation: loan charge amount

-(1) In these Regulations, 'loan charge amount' has the meaning given by section 25(7) of FA 2026 supplemented by the descriptions given in the following paragraphs.

(2) Loan charge amounts which arise (in any tax year, or in any other period of time( 13 )) in connection with a Schedule 11 or Schedule 12 to the F(No. 2)A 2017 loan or quasi-loan( 14 ) are-

(a) any amount of income tax under an enactment;
(b) any amount of national insurance contributions under an enactment;
(c) any amount of late payment interest under section 101 of FA 2009 or under a contract settlement on amounts in paragraph (a) or (b).

(3) Amounts of income tax and national insurance contributions include amounts self-assessed by a person under section 9(1) of TMA 1970( 15 ), whether or not that assessment is final.

(4) In this regulation, amounts of national insurance contributions are (within the meanings given by section 1(2) of SSCBA 1992 and section 1(2) of SSCB(NI)A 1992)-

(a) primary Class 1 contributions, and
(b) Class 2 and Class 4 contributions.

This section clarifies exactly which charges are considered 'loan charge amounts' for the purposes of the scheme.

It includes income tax, National Insurance contributions (Class 1, 2, and 4), and any late payment interest associated with these taxes.

It specifies that these amounts apply whether they were determined by HMRC or self-assessed by the taxpayer.

Interpretation: loan charge gross liability

-(1) In these Regulations, 'loan charge gross liability' has the meaning given by section 25(7) of FA 2026 supplemented by this regulation.

(2) When ascertaining P's total loan charge amounts for the purpose of determining P's loan charge gross liability, the Commissioners must-

(a) remove any double taxation of income tax or national insurance contributions in connection with a Schedule 11 or 12 to F(No. 2)A 2017 loan or quasi-loan,
(b) determine a just and reasonable amount they consider that they would seek to recover from P in respect of loan charge amounts if P were not to accept a settlement offer made under the Scheme, and
(c) assume, for the purposes of this regulation, that P has, or will have, the means to pay the amount they determine.

This section outlines how HMRC (the Commissioners) must calculate a taxpayer's total liability before an offer is made.

The Commissioners are required to eliminate instances of double taxation and determine a 'just and reasonable' figure they would otherwise pursue.

For the purpose of this calculation, the Commissioners must assume the taxpayer has the financial means to pay the full amount.

Interpretation: specified connected amounts

-(1) In these Regulations, 'specified connected amounts' are-

(a) any amount treated as earnings (of an employee) under section 222 and 223 of ITEPA 2003;
(b) any amount of secondary Class 1 national insurance contributions within the meaning given by section 1(2) of SSCBA 1992 and section 1(2) of SSCB(NI)A 1992;
(c) any payment on account, whether the amount is paid or payable;
(d) any amount of penalty other than a reserved penalty;

where that amount arises at any time, or period of time, and is incidental to, or otherwise connected with, loan charge amounts.

(2) In this regulation, a 'reserved penalty' means a penalty under Schedule 24 to FA 2007 (penalties for errors) which P agrees to pay as an additional qualifying amount as a condition of a settlement offer under regulation 12.

This section defines 'specified connected amounts' which may be included in a settlement offer alongside the primary loan charge.

These include employer National Insurance contributions (secondary Class 1), certain earnings-related charges, and most penalties.

It distinguishes these from 'reserved penalties,' which are specific penalties for errors that can be added to a settlement as a separate condition.

Methodology for determining amounts etc.

-(1) Where for the purposes of these Regulations the Commissioners must determine-

(a) an amount of loan charge gross liability, or
(b) any amount, or the attribution of an amount to a tax year, for the purposes of the calculation of settlement amounts,

they must make that determination in accordance with this regulation.

(2) The Commissioners may make a determination using information available or provided to them, or by such method of estimation, as they consider reasonable in the circumstances.

(3) In particular, the Commissioners may, for the purposes of making a determination, draw inferences from general or specific information about arrangements of a similar nature to the arrangements which relate to the relevant loan charge amounts for which P is liable, including in relation to the position of users of such arrangements in a comparable position to P.

This section grants the Commissioners the authority to estimate tax amounts and attribute them to specific years when precise data is unavailable.

It permits them to use reasonable estimation methods and draw inferences from similar tax avoidance arrangements used by other taxpayers.

This methodology applies to calculating both the gross liability and the specific settlement offer amounts.

Part 2 Establishment of the Scheme

Establishment of the Loan Charge Settlement Scheme

-(1) A scheme is established on commencement day, to be known as the 'Loan Charge Settlement Scheme', under which-

(a) persons who are liable to pay loan charge amounts may enter into a settlement agreement with the Commissioners, and
(b) where such a settlement agreement is entered into, provision is made for inheritance tax in accordance with Part 6.

(2) These Regulations establish the rules of the Scheme.

(3) The Commissioners are responsible for the collection and management of the Scheme.

This section formally creates the Loan Charge Settlement Scheme.

It states that the scheme allows liable taxpayers to enter into settlement agreements and provides for associated inheritance tax adjustments.

HMRC is designated as the body responsible for managing and collecting funds under the scheme.

Part 3 Eligibility

Eligibility for the Loan Charge Settlement Scheme

The Commissioners must make a settlement offer to a person (an 'eligible person') to enter into a settlement agreement under the Scheme if-

(a) the Commissioners believe that the eligible person is liable to pay loan charge amounts, and
(b) the eligible person is not a person the Commissioners reasonably suspect is, or at any time has been-
(i) a promoter or introducer for the purposes of Part 7 of FA 2004( 16 ), or
(ii) a director or shadow director( 17 ) of a promoter or introducer.

This section defines who is eligible for a settlement offer.

While it mandates offers for those HMRC believes owe loan charge amounts, it explicitly excludes individuals who HMRC reasonably suspects have been promoters or introducers of tax avoidance schemes.

This exclusion also applies to directors or 'shadow directors' of such promoting entities.

Part 4 Settlement Offers

Settlement offers: general

-(1) A settlement offer under the Scheme must be made to a person ('P') in accordance with this Part.

(2) Save where paragraph (3) applies, a settlement offer must be calculated in accordance with the method in regulation 10.

(3) If P is a corporate employer, a settlement offer may be calculated in accordance with regulation 11 (instead of the method in regulation 10).

(4) A settlement offer must-

(a) describe the loan charge amounts to which it relates ('relevant loan charge amounts'),
(b) describe the specified connected amounts to which it relates,
(c) state that, if the offer is accepted-
(i) every relevant amount ceases to be, or will no longer be, payable by P, and
(ii) P will instead be liable to pay the settlement amount, and
(d) (unless it is withdrawn under paragraph (7)(a) or extended under paragraph (7)(b)) remain open to accept for the period provided by paragraph (8) and (9).

(5) Where a settlement offer is made (and in addition to what is required by paragraph (4)(c)(i))-

(a) if P is not a corporate employer, the offer may also state that, if accepted, relevant amounts described for these purposes in the offer cease to be, or will no longer be, payable by a corporate employer, or a former corporate employer, of P, or
(b) if P is a corporate employer, the offer may also state that, if accepted, relevant amounts described for these purposes in the offer cease to be, or will no longer be, payable by an employee, or a former employee, of P.
(6) A settlement offer must be made by the Commissioners giving P notice of the offer in writing.

(7) The Commissioners may-

(a) withdraw a settlement offer by giving P notice in writing;
(b) extend time for acceptance of the offer under paragraph (4)(d) (including after a settlement offer has expired under that paragraph);
(c) make a further settlement offer, if a settlement offer in respect of the same relevant loan charge amounts has-
(i) expired,
(ii) been withdrawn by the Commissioners, or
(iii) been rejected (or a counter-offer to it has been made) by P.
(8) The period in which a settlement offer is open for acceptance is-
(a) 90 days, or
(b) such longer period as the Commissioners may reasonably determine,

beginning with the day the offer is made.

(9) Where a settlement offer made is a further offer under paragraph (7)(c), the period in paragraph (8)(a) is 30 days.

(10) Relevant loan charge amounts-

(a) must not include amounts which are the subject of, or under, a contract settlement entered into before 1st June 2021;
(b) may include amounts which have been assessed (including self-assessed), whether or not that assessment is final.

This section sets the procedural rules for settlement offers, including the requirement for written notice and the details that must be included in the offer.

It establishes a standard 90-day window for taxpayers to accept an offer, which may be extended by HMRC, and a shorter 30-day window for subsequent offers.

It also allows an offer to settle the liabilities of both an employee and their employer simultaneously, provided the specific conditions are met.

Settlement offers: calculation of settlement amounts (primary method)

-(1) The settlement amount in a settlement offer made to P under regulation 9(2) is calculated in accordance with the following method.

Step 1: Determine value of loans. Step 2: Determine other amounts paid. Step 3: Determine charged amounts/fees. Step 4: Attribute to tax years. Step 5: Determine starting amount of tax/NICs. Step 6: Apply reductions (10% of first £50k, 5% of next £100k). Step 7: Total these amounts. Step 8: Reduce by £5,000. Step 9: Subtract from loan charge gross liability. Step 10: If product is £70k or less, Step 8 result is the settlement amount. Step 11: If product more than £70k, settlement amount is gross liability minus £70k.

(2) Defines 'notional national insurance contributions' as Class 4 contributions based on total income. (3)-(5) Detail the specific tax rate methodologies (basic, higher, additional) and profit limits for National Insurance used in the steps above.

This section provides an 11-step mathematical formula for calculating the settlement amount for individuals.

The process involves identifying the loan values, attributing them to specific years, and applying a series of reductions—including a flat £5,000 deduction and percentage-based discounts for amounts under £150,000—before comparing the result to the total gross liability.

The final settlement amount is capped relative to the gross liability, ensuring the reduction is at least £70,000 if the calculated difference exceeds that threshold.

Settlement offers: calculation of settlement amounts (alternative method: corporate employers)

-(1) Where a settlement offer is made to a corporate employer under regulation 9(3), the settlement amount is calculated in accordance with the following method.

Step 1: Identify relevant employees. Step 2: Determine loan/fee amounts per employee. Step 3: Total these as 'employer year amount'. Step 4: Divide by primary method amounts to get 'first percentage'. Step 5: Apply first percentage to step 5 amounts of primary method. Step 6: Total to get 'employer total amount'. Step 7: Divide by primary method step 7 total to get 'second percentage'. Step 8: Apply second percentage to the final primary settlement amount. Step 9-10: The resulting portion is the settlement amount (summed if multiple employees).

(2) Defines 'primary method' and 'relevant arrangement'.

This section provides a specialized calculation method for corporate employers who wish to settle on behalf of their employees.

It works by first calculating what each individual employee's settlement amount would be under the primary method and then deriving a proportional 'employer's portion' based on the specific arrangements.

If an employer is settling for multiple employees, the final settlement figure is the sum of these individual portions.

Settlement offers: conditions

-(1) The Commissioners may make it a condition of a settlement offer that-

(a) P agrees to pay additional qualifying amounts; (b) P agrees to withdraw existing court/tribunal proceedings; (c) P agrees forbear from new claims against HMRC; (d) P agrees to forgo tax repayment claims; (e) P executes the agreement as a deed if the payment is nil; (f) P agrees to discharge/substitute prior contract settlements; (g) P agrees to re-allocate previous payments to other liabilities.

(2)-(4) Define 'additional qualifying amounts' as certain deliberate inaccuracies or other tax amounts assessed on or before 26 Nov 2025. (5)-(6) Prohibit HMRC from charging their own legal costs in certain circumstances and define relevant NI contributions.

This section lists the conditions HMRC can attach to a settlement offer, such as requiring the taxpayer to drop current lawsuits or waive rights to future claims against HMRC. It also allows HMRC to include other outstanding tax debts (additional qualifying amounts) in the settlement, provided they were assessed before late November 2025.

HMRC is specifically barred from including their own legal costs as a condition of the settlement in cases where HMRC initiated the proceedings.

Part 5 Settlement Agreements and Payments

Payment of settlement amounts etc.: general

-(1) Settlement amounts are treated as if they are an amount of tax recoverable as a debt due to the Crown.

(2) Nothing in paragraph (1) affects the ability of the Commissioners to recover additional qualifying amounts included in a settlement agreement.

(3) Settlement amounts and additional qualifying amounts are amounts that P is liable to pay to HMRC under these Regulations.

This section establishes the legal status of the settlement money.

Once an agreement is reached, the settlement amount is legally classified as a debt due to the Crown, granting HMRC the same recovery powers they have for standard tax collection.

It also confirms that any other tax debts included in the agreement remain fully recoverable.

Payments prior to date of settlement agreement

-(1) The Commissioners must credit relevant payments against the liability of P to pay a settlement amount in accordance with this regulation.

(2) Details how payments are credited: (a) credit only up to the settlement amount; (b) non-advanced payments exceeding the settlement cannot be refunded or credited elsewhere; (c) advanced payments (like payments on account) can be refunded or credited to other tax debts if they exceed the settlement amount. (3) Allows payments made by third parties to be credited to P's settlement. (4) Defines 'advanced payment' and 'relevant payment'.

This section explains how money already paid to HMRC before the settlement is handled.

Standard tax payments are used to reduce the settlement balance but generally cannot be refunded if they exceed that balance; however, specific 'advanced payments' (like voluntary payments on account) can be refunded or applied to other debts if there is a surplus.

It also permits payments made by someone else on the taxpayer's behalf to be credited toward the settlement.

Part 6 Inheritance Tax

Inheritance tax

-(1) If P enters into a settlement agreement-

(a) amounts of inheritance tax which- (i) have not been paid, and (ii) arise before the end of the period of 3 months beginning with the day the settlement offer was made... cease to be payable...
(b) no relevant loan or quasi-loan is to be treated as a liability for the purposes of section 5(3) of IHTA 1984.

(2)-(4) Define Case 1 and Case 2 regarding transfers of value to settlements and settlement charges, and define terms like 'relevant settlement'.

This section provides inheritance tax (IHT) relief to those who join the scheme.

It specifies that if a taxpayer enters into a settlement agreement, certain unpaid IHT charges related to the loan arrangements cease to be payable.

Additionally, the loans themselves are not treated as liabilities that would reduce the value of a person's estate for other IHT calculations.

Part 7 Miscellaneous Matters

Notices

A notice given in writing under these Regulations may be given electronically.

Supplementary and transitional provision

-(1) Where a qualifying offer has been made prior to commencement day, the offer is treated as a settlement offer made and notified to P under the Scheme on commencement day.

(2) Defines 'qualifying offer' as one made to an eligible person that states intent to be under the Scheme and meets Part 4 requirements.

This section allows HMRC to serve notices electronically and includes 'transitional' rules.

These rules ensure that any settlement offers sent out before these regulations officially started (if they met the scheme's criteria) are treated as valid offers made under the new scheme from 5 August 2026.

View Source

Justice Transport