HMRC loan charge settlement offer: 3 things to check before you sign

HMRC has started writing to eligible taxpayers in tranches with loan charge settlement offers, following the Loan Charge Settlement Scheme Regulations being laid before parliament on July 15th 2026, and ahead of their coming into force on August 5th 2026.

Contractors who receive an HMRC loan charge settlement letter — the first batch arrived in the post w/c 27 July 2026 — need to be across three things before signing, writes Meredith McCammond, technical officer at LITRG.

1. Follow the required formalities.
2. Understand HMRC's simplified calculations.
3. Establish the amount of untaxed income.

What to do first when your HMRC loan charge settlement letter arrives?

The first thing to do when you receive an HMRC loan charge settlement offer is to read it very carefully, paying particular attention to HMRC's instructions — because once you accept and sign, it becomes legally binding and can only be unwound in very limited circumstances, as HMRC’s enquiry manual makes clear.

The instructions are also key because they explain the formalities that recipients of the HMRC loan charge settlement letters need to follow.

Follow the required formalities

The most obvious yet slightly paradoxical formality is that contractors must still sign off on the HMRC offer and submit any accompanying paperwork, regardless of whether the total shown comes to “£0.”

So a nil-offer from HMRC doesn’t mean there’s nil action to take.

If there is an amount to pay, the first offer will assume you can pay the full amount in one go.

If you cannot, and you need to pay by instalments, the offer will need to be reworked by HMRC to reflect this — the payment schedule and the cost of forward interest (now lower than it used to be) will form part of the settlement agreement.

Bottom line for contractors: Only accept HMRC’s loan charge settlement offer once you're satisfied you understand and agree with the calculations. If it needs to be reworked to reflect an instalment arrangement, make sure you sign the reworked version.

Why does HMRC use ‘simplified calculations’ in my loan charge settlement offer?

Broadly, because it’s quicker. The taxman’s thinking here is that calculating it strictly would probably mean including a wide range of complex elements, increasing the starting figure and making it more likely that the difference between the original and new liability would exceed £70,000.

Understand HMRC's simplified calculations

Contractors who saw LITRG’s April 16th 2026 update shouldn’t be too wrongfooted, and probably have the best chance of understanding HMRC’s simplified calculations.

But that doesn’t mean other ‘loan charge contractors’ cannot now catch up.

In our update, we showed how we expected the new loan charge settlement terms, initiated by the Ray McCann Loan Charge Review, to work. We anticipated that HMRC might use a simplified calculation of the original loan charge liability when determining whether the £70,000 cap applies.

What do the Loan Charge Settlement Scheme Regulations say?

The Employment and Trading Income (Loan Charge Settlement Scheme) Regulations 2026 state that HMRC can use a “just and reasonable” approach to calculating the original loan charge liability.  

So the taxman is not breaking the August 5th rules by opting for a simplified method.

The regulations also make clear that simplified calculations will be used more widely in the process.

What’s in HMRC’s loan charge settlement calculation?

HMRC will use a simplified version of a taxpayer's original income tax and National Insurance contributions position for the relevant year, then add the untaxed disguised remuneration and recalculate the liability.

The difference between the two calculations represents the additional amount that should have been paid and is the starting point for the discounts.

What is HMRC’s aim with ‘simplified’ loan charge settlement offers?

The aim is to reach a fair settlement without having to reconstruct every aspect of a taxpayer's affairs for each year, which could require reviewing historic records, allowances, reliefs, payroll information, legislation and more.

Bottom line for contractors: The simplified calculation used by HMRC to come up with the loan charge settlement offer is not intended to produce a more favourable or less favourable outcome. Instead, it is designed to make settlements quicker, more consistent and more manageable.

Does the £70,000 cap simplified calculation help or hurt you?

Generally speaking, the £70,000 cap should leave most contractors better off.

Where the cap applies, HMRC bases your settlement offer on the simplified loan charge liability (essentially just the income tax and late payment interest) less £70,000, rather than the strict loan charge liability. That's a small but hugely important point for any contractor receiving one of these offers to grasp.

As the original calculation could have been increased by provisions such as the s222 ITEPA 2003 charge, penalties and Inheritance Tax, HMRC's use of simplified figures is what ought to deliver a better financial outcome for most affected taxpayers.

It also means that if taxpayers do not settle under the new, McCann-inspired terms, the amount they have to pay for the loan charge may be greater than the simplified loan charge liability included in the settlement offer.

How does HMRC work out your untaxed income under the loan charge?

HMRC bases your untaxed income figure on whatever realistic information it already holds about you; this might be information confirmed by you previously, or obtained from HMRC-trusted third parties.

To be accurate, the loan charge settlement offer needs to be based on the most realistic estimate of how much was paid through the disguised remuneration arrangement.

Where HMRC doesn't hold that information, it may have to use an estimate instead, or ask you to provide further details. If this happens, it's worth understanding how those estimates are reached, and what you can do if you believe they're wrong.

Establish the amount of untaxed income

The most accurate way to establish the amount of untaxed income received is through bank statements.

However, given the passage of time, it may be increasingly hard for even the most paperwork-proud contractor to obtain these! In this situation, other evidence may help estimate the amount of untaxed income received.

Worked example: umbrella company contractor Jane’s HMRC-estimated untaxed income v actual untaxed income

Jane worked as a social worker through an agency, which paid her via an umbrella company. Her daily rate was consistently around £100. For three months, she switched to a different umbrella company on a friend's recommendation. Jane later discovered that this umbrella company had paid her through a disguised remuneration arrangement.

HMRC has now written to Jane, stating that she needs to settle her loan charge position. As HMRC does not hold information about the actual amount Jane received through the arrangement, the tax office has initially estimated her untaxed income at £11,000 — based on payments made to other workers using the same umbrella company.

Extra details from Jane could reduce the HMRC estimate

Extra information about Jane's circumstances could reduce that £11k figure substantially.  If HMRC is given more detail, such as her role, sector, level of seniority, typical daily or weekly rate, and earnings before and after the three-month period, it may be able to produce a more realistic estimate of the untaxed amount. And this may be closer to £3,000, once you consider that some of the money will already have been taxed.

Therefore, Jane should provide HMRC with any credible information she can find that supports her position. This might include payslips from before and after the three-month period, contracts, agency records or timesheets, emails about rates or payments, or any other evidence that helps demonstrate what she was likely to have received.

Bottom line for contractors: the taxman may base his estimate of your untaxed income on the payments he knows were made to other employees of the same umbrella company, unless you come forward with evidence to the contrary.

What should you do if your HMRC loan charge settlement offer looks wrong?

If you receive a loan charge settlement offer in a letter from HMRC following the McCann Review, do not ignore it, even if you believe the amount is wrong.

Be aware, if HMRC does not have reliable information about the amount of untaxed income you received from a disguised remuneration scheme or arrangements, it may use estimates or extrapolations to calculate your liability. These estimates may not accurately reflect your circumstances and could be too high. These estimates are not to be confused with the simplified calculation method that HMRC is using, and is permitted to use under the Loan Charge Settlement Scheme Regulations.

Can you challenge HMRC’s figures if they look wrong?

You can challenge HMRC's figures if they don't seem right — and it's best to act as soon as possible, with a view to HMRC providing a reworked offer.

Importantly, even if you do not have perfect records and cannot establish the exact amount, it is usually better to provide your own reasoned estimate, supported by whatever evidence you have.

Then, keep a written record of how you calculated your estimate and retain copies of any supporting documents you send to HMRC. This will help if any questions arise later in the settlement process.

Loan Charge Settlement Offer Checklist

Before you sign, check:

• Have you formally accepted the offer in writing, even if it's £0?
• If you're paying by instalments, is the version you're about to sign the reworked one that reflects that instalment plan?
• Do you understand which figures are "simplified" versus strictly calculated, and does the £70,000 cap apply to you?
• If HMRC has estimated your untaxed income, can you support a more accurate figure — with payslips, contracts, timesheets or rate evidence, or context about your role, sector, seniority and earnings either side of the period?
• Have you kept a written record of how you reached any estimate you're submitting?

HMRC Loan Charge Settlement Offer: FAQs

Do I have to formally accept a £0 loan charge settlement offer? Yes. Even where HMRC's offer shows nothing to pay, our understanding is that you still need to formally accept the offer and complete any required paperwork. A nil amount doesn’t equate to nil activity on the part of loan charge settlement offer recipients.

Can I change my mind after signing a loan charge settlement offer? Once signed, a settlement offer is legally binding and can only be unwound in very limited circumstances. Make sure you agree with the calculations, and that you're signing the correct (e.g. reworked, instalment) version, before you sign.

What is the £70,000 cap referred to in HMRC’s loan charge settlement letter? Where it applies, the cap means your settlement offer is based on a simplified loan charge liability (income tax and late payment interest) less £70,000, rather than a strict calculation, but the effect is that most contractors should be better off as a result.

Could HMRC's estimate of my untaxed income be too high? It's possible. In the case of umbrella company contractor ‘Jane,’ HMRC's initial estimate of untaxed income was £11,000, based on payments to other workers at the same umbrella company — but evidence from her to HMRC about her role, rate and earnings (either side of the period in question) could put the figures closer to £3,000.

What if I think HMRC's estimate of my untaxed income is wrong? You can challenge it, but act quickly. Provide your own reasoned estimate backed by evidence — payslips, contracts, agency records, timesheets or rate emails — and keep a written record of how you calculated it.