The Budget 2025 – a tougher stance on avoidance

The loan charge has been a controversial anti-avoidance measure since its inception in 2017, and the long-awaited loan charge review undertaken by Ray McCann was published alongside the Budget on 26 November 2025.

The Chancellor announced in the Budget a new settlement opportunity which will support those subject to the loan charge in resolving what are usually long-standing cases with HMRC. The government’s response to the review takes on board most of Ray McCann’s recommendations and in places goes further. Through the new settlement opportunity, there will be more prospect of making a ‘sub-standard’ offer (i.e. an offer to HMRC lower than the tax charged in accordance with the legislation). Where the review proposed that any shortfall be suspended, the government has instead suggested it will write off all or part of the liability at the point of settlement. This will be hugely welcome relief to those who have put off engaging with HMRC where they had no prospect of being able to afford the loan charge previously. It can also give all taxpayers who settle certainty and finality at the point of settlement.

One key feature of how the loan charge is calculated is that all loans are treated as income arising at 5 April 2019. A recommendation that has been accepted by the government is that the liabilities will be ‘unstacked’ meaning tax liabilities will be calculated by reference to the years in which the loans were actually received. This can significantly reduce the overall tax bill for those who are ordinarily basic or higher rate taxpayers and undoes one of perhaps the most unfair aspects of the loan charge. The original intention was to use this ‘stacking’ as an incentive to taxpayers to settle before the loan charge crystallised in 2019, but the government admits it did not achieve its aim here and it is now acting instead as a barrier to settlement and will be undone.

Two other key recommendations that have been accepted include agreement that no penalties will be applied, and that because HMRC have caused significant delays in progressing avoidance cases, late payment interest will be written off, rather than suspended.

The government have also agreed to five-year payment plans if required by taxpayers, without requiring further information such as statements of assets and income which are commonly required for longer payment terms. There will be no maximum length set on the payment terms required and HMRC will work with taxpayers to agree more tailored payment plans than we see elsewhere. Whilst this may sound unfair, the message is that the loan charge was an ‘extraordinary’ piece of government policy which requires an exceptional response.

For those on the lowest incomes and who received lower benefits from any loan arrangements, the news that the government will reduce all loan charge liabilities by £5,000 will also be extremely welcome.

The settlement opportunity is yet to be legislated, but if passed into law, this signals a move towards a much more pragmatic and flexible approach by HMRC than we’ve seen before. It may be some time before taxpayers are contacted though as the government’s response confirms that taxpayers should expect to be contacted by the end of the 2027/28 tax year.

Ray McCann’s review also highlights that promoters of loan schemes have historically had significant influence over what information taxpayers received and understood. He recommends that HMRC adapt the existing process to make it clear that receiving a Scheme Reference Number (SRN) does not mean that there is HMRC approval of the tax planning scheme. He also goes as far as to say that promoters of schemes should be prohibited from offering tax return compliance and enquiry defence services to clients. The government has accepted both recommendations and announced they will consult stakeholders in 2026.

The Budget further announced that the government will legislate to further close in on promoters of marketed tax avoidance schemes, and a consultation on further measures will be published in early 2026.

The Budget has also announced reform in other areas of anti-avoidance – relating to share reorganisations, offshore personal tax, and inheritance tax loopholes – with further detail to be provided.

These announcements indicate a continued and strengthened focus from the government in tackling promoter-led tax avoidance. A potential restriction on the services tax promoters can provide reinforces the need for taxpayers caught in these schemes to engage with qualified and experienced advisers who can review the historic position and advise on how best to settle with HMRC. Whilst some reforms remain subject to consultation, the landscape suggests that proactive engagement will be critical in managing the taxpayer’s risk effectively and there will be worse consequences for taxpayers who bury their heads in the sand.

The 2025 Budget builds on the measures introduced in 2024 to help close the tax gap, with a focus on debt-collection, and modernisation to help reduce risk of errors.

A ‘strengthened’ reward scheme is being launched rewarding informants who provide information which leads to HMRC recovering a loss of tax due to avoidance or evasion. Where over £1.5m is recovered, HMRC will pay rewards of up to 30% of the additional tax collected. The changes to this scheme apply with immediate effect and could be a large windfall for anyone with genuine knowledge of tax evasion. HMRC can expect to receive a lot more calls on their fraud hotline, and given the length of time it can take to reach settlement with tax evaders – if even possible – those hoping to cash in here might be waiting a long time.

The Budget announces that the government is investing £64m in partnerships between HMRC and private sector debt collection agents, and £89m in HMRC’s debt management team to fund additional staff. This is to collect tax where it has been disclosed but not yet paid, and these outstanding debts make up over 10% of the tax gap. The Budget also suggests frequency of self-assessment tax payments may change, specifically for those who submit self assessment tax returns but also earn income via PAYE. There is no timeline on when this might change, and a consultation will take place in 2026. In practice this might mean further confusion to the tax code system where HMRC try and collect additional tax via PAYE.

Further investment into modernising the tax system is announced, with the government suggesting this will be via more digital ‘prompts’ that help taxpayers get their returns right the first time. We have begun to see this take place with self-assessment prompts relating to private usage, and the announcement today suggests taxpayers who complete their own tax returns will see a lot more of this in future. This will be for VAT and corporation tax in addition to self-assessment. Digital prompts will need to be informative without being too persuasive, as there is a risk that taxpayers will exclude claims for tax relief altogether if they fear they might get their tax affairs wrong and be subject to a penalty.

Enhanced powers for HMRC will be introduced to tackle tax advisers who facilitate non-compliance, but after consultations, the government has decided not to regulate tax advisers. Instead, the government has said they will work in partnership with the tax advice sector to try and raise standards. But it remains to be seen how this will play out and whether the government will take any further steps to tackle rogue agents in the market.

The government has announced that from 6 April HMRC’s powers to tackle fraud in the Construction Industry Scheme (CIS)  will be strengthened, but no further detail on this is provided. There will be a technical consultation on how the scheme can be simplified, and administration improved, which is much needed.

The government will also be calling for evidence in 2026 relating to software standards in the Electronic and Mobile Point of Sale Sector, which is relevant to any business taking sales income electronically. Electronic Sales Suppression (ESS) has been an area of HMRC interest for some time. This will be of particular interest to those in the retail and hospitality sectors, where electronic sales are standard. Not all businesses make intentional errors, but it is the business owner’s responsibility to ensure adequate processes are in place to ensure 100% of sales income is reported to HMRC via VAT and tax returns.

Other reforms and consultations can be expected in relation to behaviours and penalties, specifically the potential introduction of a new ‘recklessness’ criminal offence for direct taxes; doubled penalties for corporation tax late filing from 1 April 2026; and potentially we may see a modernised penalty regime following the behavioural penalties consultation that took place last year. A simplified penalty regime would be welcome given the current disparities between ‘failure to notify’ and ‘inaccuracy’ cases.

These developments underscore HMRC’s continued focus on fraud prevention and enforcement. Individuals and businesses alike should be aware of upcoming changes and consider reviewing processes and compliance practices to prepare for much more stringent oversight on tax compliance and collection.