Quick guide to Contractor Loan Schemes

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Contractor Loan Schemes, too good to be true?

Last updated on Wednesday, October 7, 2015

Written by Churchill Knight

Have you ever been bombarded by companies promising you over 90% take home pay? Over the years we have all seen promoters offering exactly that, by using contractor loan schemes. Promoters reduce the amount of tax you pay on your income by artificially diverting income through a chain of companies, trusts or partnerships and pay the contractor in the form of a ‘loan’. The ‘loans’ are claimed to be non-taxable because they don’t form part of a contractor’s income. However, in reality the ‘loans’ aren’t repaid and the money is used by the contractor as if it were his or her income.

HMRC are adamant that these schemes do not work and are strongly advising contractors and freelancers to keep well away from them. Individuals who have been using such schemes are being encouraged to withdraw and settle their tax affairs as soon as possible to avoid substantial penalties and interest charges being incurred.

HMRC have confirmed that this type of scheme must be declared under the Disclosure of Tax Avoidance Scheme (DOTAS) legislation, which means that the promoter is required to pass the Scheme Reference Number (SRN) to all the users who must declare it on their tax return.

Churchill Knight & Associates Ltd do not and have never endorsed such schemes. However if you have previously used such schemes, or would like further information, please visit the HMRC article (Spotlight 26) or declare to HMRC that you have used the scheme. 

Learn more on what to look for in a contractor accountant.


The information contained in this blog is for informational purposes only and is of a general nature. It is not a substitute for specific advice in your particular circumstances. You are recommended to seek specific professional advice before you take any action or refrain from any action. Whilst we endeavour to use reasonable efforts to furnish accurate, reliable and up to date information, we do not warrant that it is such. Therefore, we assume no responsibility for the accuracy, completeness or timeliness of any information contained in this blog. Under no circumstances will the content creator or Churchill Knight & Associates Ltd be liable for any losses or damages, of any type arising out or in any way connected with your use or anyone’s use of this blog.


If you enjoyed this blog, you should also read our blog on How to Choose the Right Contractor Accountant.

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