Tax Glossary

Disguised Remuneration

White Arrow
Last updated on:
March 17, 2024

Disguised remuneration is a complex tax avoidance strategy that has been targeted by HMRC due to its use to circumvent paying Income Tax and National Insurance contributions. This scheme typically involves what appears to be loans from third parties to individuals which, unlike regular income, aren't expected to be repaid and therefore evade taxation.

The Mechanics of Disguised Remuneration

The essence of disguised remuneration lies in its ability to mask true income as non-taxable loans, thereby allowing individuals and employers to avoid their tax obligations. These arrangements are particularly appealing because loans, in their true sense, do not constitute taxable income under UK tax law.

Target Audience

Both employers and individuals, including contractors through what are often termed "contractor loans," have utilized disguised remuneration schemes. These schemes have been a method to sidestep traditional payroll and the associated tax liabilities.

HMRC's Response

In response to the widespread use of disguised remuneration schemes, HMRC initiated stringent measures in 2019 with the introduction of the loan charge. This charge targeted loans issued since 9th December 2010 that remained unpaid by 5th April 2019, demanding settlement of the due Income Tax and National Insurance contributions, along with possible penalties. Current regulations also impose strict conditions on company loans to directors to prevent misuse.

Legal Implications and Penalties

Tax evasion, including the use of disguised remuneration schemes, is subject to severe penalties in the UK. Consequences can range from financial penalties to more drastic measures such as bankruptcy or imprisonment, underscoring the seriousness with which HMRC views such avoidance tactics.

If You've Used Disguised Remuneration

Individuals who have engaged in disguised remuneration schemes are encouraged to proactively settle their unpaid taxes with HMRC. The tax authority offers settlement terms and, where necessary, the possibility of arranging a manageable repayment plan to alleviate the financial burden of rectifying past avoidance actions.


Disguised remuneration schemes represent a significant challenge to the integrity of the UK's tax system. HMRC's crackdown on these arrangements underscores a commitment to ensuring tax fairness and legality. For those involved in such schemes, understanding the implications and taking steps to regularize their tax affairs is critical to avoid potential penalties and legal consequences.

By clicking “Accept”, you agree to the storing of cookies on your device to enhance site navigation, analyse site usage, and assist in our marketing efforts. View our Privacy Policy for more information.

Arrange your free initial consultation today.

Book Free Consultation
UK's best rated accountant 2021
Rated Excellent
5 Stars
on Trustpilot