Disguised Remuneration and Tax Avoidance Schemes

Introduction

Disguised remuneration schemes are tax avoidance arrangements that HMRC challenges aggressively. These schemes attempt to pay employees or directors through loans or other indirect methods to avoid tax and National Insurance, but HMRC treats the payments as taxable income and pursues the unpaid tax—sometimes decades later through the "loan charge".

What is disguised remuneration?

Disguised remuneration is an arrangement where you receive payment for your work in a form other than straightforward salary or wages, with the aim of avoiding income tax and National Insurance contributions.

Common disguised remuneration schemes involve:

• Your employer or a third party setting up a trust or other structure
• Payment being made into this structure rather than directly to you
• You then receiving the money as a "loan" that is never repaid
• The scheme promoter claiming this loan is not taxable income

Despite being marketed as loans, HMRC treats these payments as earnings. You remain liable for the income tax and National Insurance that should have been paid, plus interest and potential penalties.

How HMRC pursues disguised remuneration liabilities

HMRC has extensive powers to recover unpaid tax from disguised remuneration schemes. The department can pursue both employers who set up these arrangements and employees who benefited from them.

In situations where HMRC cannot reasonably collect the tax liability from the employer, they have the power to transfer that liability to the employee. This transfer can happen in three scenarios:

• The employer no longer exists
• The employer is based offshore
• The employer cannot pay the liability

This means that even if your employer arranged the scheme and handled all the paperwork, you can still be held personally responsible for the tax bill.

The loan charge

The loan charge is a specific tax charge introduced to tackle disguised remuneration schemes that involved loans.

The loan charge applies to outstanding loans made through disguised remuneration schemes. If you received money through such a scheme and it remains outstanding as a loan, HMRC will charge you income tax on the total amount as if it were earnings.

This charge can create substantial tax bills, particularly for individuals who used these schemes over multiple years and accumulated large "loan" balances.

Settling disguised remuneration liabilities

If you have used a disguised remuneration scheme, HMRC encourages you to come forward and settle your tax affairs. The department has published specific guidance about settling disguised remuneration scheme use and paying the loan charge.

Settling involves:

• Declaring the full amount you received through the scheme
• Calculating the income tax and National Insurance due
• Paying the outstanding amounts, which will include interest on late payment
• Potentially facing penalties, though these may be reduced if you voluntarily disclose

HMRC may offer settlement terms, but you need to engage with them proactively. Waiting for HMRC to investigate you first will likely result in higher penalties.

Avoiding tax avoidance schemes

The most important lesson from disguised remuneration is to avoid tax avoidance schemes entirely. These schemes often sound attractive—promoters promise significant tax savings and assure you they are legal. However, there are clear warning signs:

Promises that sound too good to be true: If a scheme claims you can dramatically reduce your tax bill while earning the same amount, it is almost certainly avoidance rather than legitimate tax planning.

Complex structures: Disguised remuneration schemes involve trusts, offshore arrangements, or multiple entities to obscure the true nature of the payment. Legitimate payroll is straightforward.

Loans that are never repaid: If you are told you will receive "loans" with no expectation of repayment, this is disguised remuneration.

Use of special purpose vehicles: Arrangements where your income is routed through trusts, employee benefit trusts, or other special structures should raise immediate red flags.

If you are offered such a scheme, remember that you—not the promoter—will be liable for the unpaid tax. Scheme promoters collect their fees and move on, whilst users face tax bills, interest charges, and penalties years later.

What to do if you have used such a scheme

If you have previously used a disguised remuneration or other tax avoidance scheme:

1. Seek professional advice from an accountant with experience in this area immediately

2. Review the guidance HMRC has published on settling these matters

3. Consider making a voluntary disclosure to HMRC before they contact you

4. Be prepared to pay the tax you should have paid originally, plus interest

5. Do not assume that because the scheme was promoted as legal, you have no liability

The consequences of not addressing these schemes are severe. HMRC continues to pursue disguised remuneration cases vigorously, and the tax bills grow larger as interest accumulates.

Current position in 2025/26

HMRC's stance on disguised remuneration remains firm in the 2025/26 tax year. The department continues to identify scheme users and pursue settlements.

If you receive any payment arrangement that appears designed to avoid tax or National Insurance, you should assume HMRC will challenge it. The legitimate ways to structure remuneration—salary, dividends, bonuses, pensions—are well established. Anything that deviates significantly from these standard methods requires careful scrutiny from a qualified accountant before you participate.

Sources

• Disguised remuneration: transfer of liability — technical note
• Tackling disguised remuneration technical update
• HMRC issue briefing: settling disguised remuneration scheme use and/or paying the loan charge

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.