Since early September 2026, HMRC has been writing to thousands of people and employers with outstanding loan charge liabilities, inviting them to settle under new terms HMRC says could cut some bills by up to £70,000. 

HMRC's own figures are striking: most customers should see a reduction of at least 50%, and around a third will be able to settle without paying anything at all. Jonathan Smith, HMRC's Director of Counter Avoidance, put it plainly: “Some people will see their bills reduced to zero and that is why we need them to engage with us. Our message is simple: get in touch so we can help you resolve this.”

This is not a minor tweak to an existing settlement offer. It is a new statutory scheme, in force since 5 August 2026, that replaces the terms on which HMRC has previously invited people to settle loan charge liabilities. 

This piece sets out what it actually does: where it comes from, who gets an offer, how the number in that offer is built, and what is deliberately left out.

Where the scheme comes from

The 2026 scheme did not appear from nowhere. It follows Ray McCann's Independent Loan Charge Review, commissioned to examine the financial impact of the charge, the barriers preventing settlement, and possible improvements to settlement terms. McCann, a former president of the Chartered Institute of Taxation, made several recommendations, and the government's response, published alongside Autumn Budget 2025, accepted all but one: it rejected only the specific ten-year cap on payment plans, allowing longer arrangements instead, and went further than recommended by adding a flat £5,000 write-off for everyone who settles under the new terms.

Parliament then legislated the scheme itself. Sections 25 to 27 of the Finance Act 2026 required the Treasury to make regulations establishing it, which it did in the Employment and Trading Income etc. (Loan Charge Settlement Scheme) Regulations 2026 (SI 2026/821), in force from 5 August 2026.

Who must be offered a settlement

Section 25(2) of the Finance Act 2026 requires HMRC to offer a settlement agreement to every person it believes is liable to pay loan charge amounts, with one significant carve-out: anyone HMRC reasonably suspects is, or has ever been, a promoter or introducer under the Disclosure of Tax Avoidance Schemes rules in Part 7 of the Finance Act 2004, or a director of one, gets no offer at all. Promoters do not get to settle their way out of exposure to the very schemes they sold.

For everyone else, the process is deliberately proactive rather than something taxpayers have to chase. HMRC is writing directly to customers, assigning each one a named caseworker, and confirming that taxpayers do not have to wait for a letter to arrive before making contact. The statutory minimum period for accepting an offer is 90 days, though HMRC says it will generally allow longer, and customers unable to pay in full immediately can agree a payment plan, typically over five years, running longer where circumstances require it.

Calculating the Liability

Section 25(6) sets out the calculation methodology which is worth understanding because it determines what any settlement offer will actually say.

HMRC starts off by calculating what the liability would be if the arrangement was left to run its natural course. This is known as the gross liability – the amount HMRC says it would ultimately look to recover if a taxpayer did not settle.

HMRC must first value the Schedule 11 or 12 Finance (No. 2) Act 2017 loans and quasi-loans connected to the person's liability, along with any other amounts paid under the same arrangements and any amounts charged as fees or deductions. Those amounts are then attributed to the tax years in which they arose, and HMRC calculates, on the assumption that income tax and National Insurance were payable in each of those years, a hypothetical starting amount of tax and contributions for each year.

That starting amount is then reduced, but not below nil, by a promoter fee deduction: 10% of the first £50,000 attributed to that tax year, plus 5% of the next £100,000. 

The reduced amounts across all relevant tax years are added together, and the total is then reduced by a flat £5,000. That produces the settlement amount, subject to one further cap: it cannot be more than £70,000 lower than the person's loan charge gross liability, meaning the total loan charge amounts the person was liable to pay before any payment was made. If the calculation would otherwise produce a bigger discount than that, the settlement amount is reset to the gross liability minus £70,000.

The regulations add technical detail to this statutory skeleton. Regulation 4 requires HMRC, in calculating the loan charge gross liability, to remove any double taxation of income tax or National Insurance connected to the same loan or quasi-loan, to determine a just and reasonable amount it would otherwise seek to recover if the person declined the offer, and to assume, for this purpose only, that the person has or will have the means to pay that amount. Regulation 3 confirms that loan charge amounts include self-assessed amounts under section 9(1) of the Taxes Management Act 1970, whether or not that self-assessment has become final, together with income tax, National Insurance contributions, and late payment interest connected to the underlying loan.

HMRC will no longer charge late payment interest on liabilities relating to the Loan Charge and no penalties will be imposed unless there is evidence of egregious behaviour.

Exclusions

Two exclusions matter most in practice. First, promoters and their directors are excluded from the offer obligation entirely, as set out above. Second, and more consequential for the wider population, section 25(4) requires the scheme to exclude any loan charge amounts that are the subject of, or under, a contract settlement entered into before 1 June 2021. Anyone who already settled and whose liability was fixed by an agreement before that date sits outside the new scheme, regardless of how the terms they accepted compare with what is now on offer. The scheme was built, deliberately, to help those who had not yet resolved their position, not to reopen settlements already reached.

That cut-off has generated real controversy, including from a cross-party group of MPs who have argued that fairness should not depend purely on the date a taxpayer capitulated to HMRC. It is a live political and, arguably, legal question, but it does not change what the statute currently says: the exclusion is mandatory, not discretionary, and HMRC has no power under the scheme to offer the new terms to someone who settled before June 2021.

Why the calculation matters

The scheme's methodology is built to be administrable at scale: value the loans, attribute them to tax years, apply a formula, apply a cap. That is precisely what makes it powerful as a tool for closing out a large number of cases quickly. But an administrable formula is not the same thing as a neutral one, and the headline discount HMRC is advertising is measured against a baseline that HMRC itself constructs, using assumptions that will not fit every case. 

Conclusion

The 2026 Loan Charge Settlement marks a significant shift in HMRC’s approach to loan arrangements, but for affected taxpayers the legislation is just the starting point. As with many tax disputes, early and informed engagement with the detail may make the difference between simply accepting HMRC’s position and properly testing it.