Contractors, can the new HMRC loan charge settlement opportunity reduce your bill?

A potential reduction in liability for some contractors caught by the Loan Charge is the upshot of a case study we’ve put together on how the new Loan Charge Settlement opportunity from HMRC could work in practice in 2026/27.

And although the potential reduction could be significant, the detail matters, writes Meredith McCammond, technical tax officer of the CIOT’s Low Incomes Tax Reform Group (LITRG).

What’s the Loan Charge in 2026 from HMRC versus 2016?

Unveiled with retrospective effect at Budget 2016, the Loan Charge has affected thousands of contractors who were paid via loan-based remuneration schemes, often through ‘umbrella companies.’

These arrangements typically replaced ordinary salary with non-taxable loans, on the understanding that they would not need to be repaid.

Following the Ray McCann Loan Charge Review (published on November 26th 2025), legislation in Finance Act 2026 introduces a new Loan Charge Settlement opportunity via HMRC.

Why does our Loan Charge review update for contractors matter?

Based on our calculations, this is an HMRC settlement opportunity that may — in some cases — result in a lower overall liability than under the original loan charge approach.

However, this is not a blanket write-off, and the settlement terms won’t benefit every contractor equally.

Unfortunately, we are also seeing initial signs that the Loan Charge recall issue may be resurfacing, potentially in response to the new settlement opportunity.

Is new Loan Charge guidance from HMRC incoming?

At the time of writing (May 2026), further regulations and detailed HMRC guidance on how people can use the new Loan Charge settlement facility are expected, but not available.

In the meantime, we hope the following provides some assistance for Loan Charge contractors, extending to potential next steps for those seeking practical details on whether this new settlement opportunity is suitable for them.

What’s changed under the new Loan Charge settlement terms?

The revised HMRC settlement approach (initiated by the McCann Review) allows some contractors to settle their affairs using calculations based on the original tax years in which the loans were received, rather than applying the 2018/19 Loan Charge in full.

Crucial features of this new Loan Charge settlement opportunity also include:

• removal of interest and penalties
• a £5,000 discount
• a write off of any IHT (Inheritance Tax) already due
• payment arrangements — with a potentially helpful revamp of forward interest calculations on the cards.

Can the HMRC loan charge settlement opportunity reduce your HMRC liability by £55,000?

For some contractors, despite some slightly anomalous aspects (including around promoter fees and NIC), overall, the revised calculation could result in a substantially reduced HMRC bill.

Our recently worked-up (albeit simplified and assumption-based) case study shows that ‘John’ could potentially have his HMRC Loan Charge liability reduced from £71,325 to £16,406.

Who is most likely to benefit from the new Loan Charge settlement opportunity?

People who are most likely to benefit are those, like John, who:

• have outstanding loan charge liabilities
• were in a loan-based scheme between December 9th 2010 and April 5th 2019
• have not yet fully settled their position with HMRC.

What about contractors who’ve already settled with HMRC?

There may also be some benefit for those individuals who previously settled their position with HMRC but have not yet completed payment.

That said, contractors should be aware that the scope to benefit in this circumstance is more limited.

For John, though, the new settlement terms will probably be a chance to draw a line under this long-running issue at a much lower cost for him.

For other contractors, we should make clear that the new Loan Charge settlement ‘opportunity’ may not apply at all, may offer little advantage, or may even introduce new complexities.

What about complex cases under the new Loan Charge settlement opportunity?

In most cases, to access the McCann-inspired settlement facility, Loan Charge contractors will be required to enter into a full and final settlement agreement with HMRC — not just for the years affected by the charge, but for all Disguised Remuneration-related tax issues.

This requirement may complicate matters for three main groups of individuals affected by the Loan Charge (and rest assured, this trio we intend to keep raising concerns about).

What three taxpayer groups are complex cases under the Loan Charge settlement facility?

1. Where individuals have a mixture of pre-2010 and post-2010 disguised remuneration liabilities, it’s likely that the non-loan charge liabilities are larger because they are older and have accrued more interest. This significantly reduces the likelihood that such individuals will be willing or able to settle.
2. Individuals with post-2019 tax issues, which will include a large number of recruitment agency workers who were paid through disguised remuneration by umbrella companies, as these individuals have effectively fallen into a ‘gap’ between the loan charge and HMRC’s joint and several liability measures — measures which should address the structural use of PAYE avoidance via DR in supply chains.
3. Individuals in arrangements that floated in and out of the loan charge depending on the precise structure of the scheme at the time (for example, due to the presence, or not, of a third party). A further complicating factor here is that HMRC’s current technical analysis may differ from earlier assumptions about whether the Loan Charge applied, meaning some contractors may get ‘out of scope’ letters when they thought they were in scope.

Is the Loan Charge Recall issue back in 2026?

Worryingly, we’re seeing early indications that a new round of Loan Charge recall activity is taking place. This recall activity may be connected to the new Loan Charge Settlement opportunity, as people are potentially going to be seeking deeds of release for IHT purposes — to stop future liabilities accruing.

It was this scenario that seemed to lead to the original round of Loan Charge recall issues in 2020/21.

The main company involved in that loan recall situation ultimately dissolved, and its director was disqualified.

However, it appears that the loans may have been sold on beforehand.

At the time, we prepared some FAQs and separate guidance for individuals who receive a demand.

What five steps should Loan Charge contractors take in 2026/27?

We are now recommending that contractors affected by the Loan Charge recall issue or the new settlement opportunity consider taking up to five steps to stay safe and minimise financial fallout:

1. If you receive correspondence from an organisation (or their solicitors) purporting to now own your loan, or a Statutory Demand for payment – do NOT ignore it. Strict time limits apply.
2. Loan Charge contractors should have now received a letter from HMRC to confirm their named caseworker. The letter should explain how the new settlement opportunity may or may not apply to your circumstances. If you think HMRC has made a mistake, or you have not received a letter, you should contact your usual caseworker or HMRC’s helpline on 0300 322 9420.
3. Importantly, if you are currently paying a Loan Charge liability, look out for a separate HMRC letter explaining that you may wish to consider pausing payment arrangements so the new ‘McCann’ settlement terms can be applied to the maximum amount possible. Do not change or stop payments without first agreeing the pause with HMRC.
4. Wait for or request a revised calculation from HMRC and compare the Loan Charge liability against the settlement outcome. Please note that in some cases, HMRC will need additional information from you before it can carry out these calculations accurately. If you have not already provided HMRC with it, start gathering together any potentially relevant information about the loans or how you were paid. Bank statements, for example.
5. Seek independent advice before entering into any contract settlement. Such advice may be available from TaxAid if you are on a low income. Tailored guidance will be particularly important if you’re a contractor who falls into one of the three ‘complex’ taxpayer groups outlined above.

The takeaway

For some contractors, HMRC’s new Loan Charge settlement opportunity, on the back of the Ray McCann Loan Charge Review, will reduce liabilities and provide a clearer path to resolution. However, the requirement to settle all related disguised remuneration matters, combined with the finality of agreement, means this is not something to approach lightly.

Understanding your position — in the round — is essential before committing.