The Employment and Trading Income etc. (Loan Charge Settlement Scheme) Regulations 2026
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10 Settlement offers: calculation of settlement amounts (primary method)
(1) The settlement amount in a settlement offer made to P under regulation 9(2) is calculated in accordance with the following method. Step 1 Determine the value of the loans and quasi-loans to which relevant loan charge amounts are connected. Step 2 Determine the other amounts paid to P under the arrangements under which those loans or quasi-loans were made. Step 3 So far as they are not already included in step 1, determine the amounts charged to P (as deductions, fees or otherwise) under those arrangements and add those to the sum determined under step 2. Step 4 Attribute the amounts determined under steps 1 to 3 to tax years, making the assumption for the purpose of that attribution that income tax and national insurance contributions were payable for those tax years in relation to those amounts. Step 5 Determine the total additional amount of income tax and notional national insurance contributions for each of those tax years which would have been payable by P in respect of that year (the “starting amount”) according to the following— determine by the first methodology the amount of income tax and notional national insurance contributions that P was liable to pay for each tax year, not taking into account the amounts attributed to that tax year under step 4; determine by the second methodology the amount of income tax and notional national insurance contributions that P would be liable to pay for each tax year, taking into account the amounts attributed to that tax year under step 4; subtract the amount determined under paragraph (a) from that determined under paragraph (b). Step 6 Reduce the starting amount (but not below nil) for each tax year by the amount that results from adding— the amount of the reduction given by reducing by 10% the first £50,000 of the total amount attributed to the tax year by step 4, and the amount of the reduction given by reducing by 5% the next £100,000 of that total. Step 7 Add together the amounts for each tax year produced by step 6. Step 8 Reduce the amount produced under step 7 by £5,000 (but not below nil) (“the adjusted total amount”). Step 9 Subtract the adjusted total amount from P’s loan charge gross liability. Step 10 If the product of the calculation in step 9 is £70,000 or less, the adjusted total amount is the settlement amount. Step 11 If the product of the calculation in step 9 is more than £70,000, the settlement amount is P’s loan charge gross liability minus £70,000. (2) For the purposes of this regulation, “notional national insurance contributions”— (a) are the amount of contributions that would have been payable, treating total income for income tax purposes as if it represented profits for the purpose of section 15(1) of SSCBA 1992 or section 15(1) of SSCB(NI)A 1992 (Class 4 contributions), (b) are treated as not payable in any tax year if P had attained pensionable age on or before 5th April 2019, as that term is defined by section 122 of SSCBA 1992 and section 121 of SSCB(NI)A 1992, and (c) in respect of traders, apply as if Class 2 contributions were not payable. (3) In step 5(a) of paragraph (1), the “first methodology” is— (a) for income tax, calculate the liability to tax for a tax year by— (i) determining the total income on which P is charged to income tax in that tax year; (ii) applying to that total income the reliefs applicable in that tax year referred to in Step 2 in the calculation in section 23 of ITA 2007, to determine the net income; (iii) deducting from the net income determined under sub-paragraph (ii) the amount of allowances applicable to that tax year under Chapter 2 of Part 3 of ITA 2007 (for the purposes of this sub-paragraph disregarding section 58 of ITA 2007 as it applies to that Chapter and defining “adjusted net income” as the amount of P’s net income for the tax year); (iv) calculating the amount of tax payable on the amount determined under sub-paragraph (iii) using— (aa) the basic rate and the basic rate limit, (bb) the higher rate and the higher rate limit, and (cc) the additional rate, applicable for each tax year; (b) for notional national insurance contributions, for each tax year— (i) apply sub-paragraphs (a)(i) and (ii) (as they apply for income tax) to determine the net income; (ii) apply to the net income— (aa) the main Class 4 percentage to the amount that exceeds the lower profits limit but does not exceed the upper profits limit, and (bb) the additional Class 4 percentage to the amount that exceeds the upper profits limit, to produce the aggregate amount of a Class 4 contribution for that year. (4) In step 5(b) of paragraph (1), the “second methodology” is— (a) for income tax, calculate the liability to tax for a tax year by— (i) determining the total income on which P is charged to income tax, not including the step 4 amounts; (ii) applying to that total income the reliefs applicable in that tax year referred to in Step 2 in the calculation in section 23 of ITA 2007; (iii) adding the step 4 amounts to the amount produced by sub-paragraph (ii), to produce an amount (the “revised net income”); (iv) thereafter, applying paragraphs (3)(a)(iii) and (iv) of the first methodology to the revised net income. (b) for notional national insurance contributions, for each tax year— (i) apply sub-paragraphs (a)(i) to (iii) (as they apply for income tax) to determine the revised net income; (ii) apply to the revised net income— (aa) the main Class 4 percentage to the amount that exceeds the lower profits limit but does not exceed the upper profits limit, and (bb) the additional Class 4 percentage to the amount that exceeds the upper profits limit, to produce the aggregate amount of a Class 4 contribution for that year. (5) In this regulation— “additional Class 4 percentage” means the percentage applicable for the purposes of section 15(3ZA)(b) of SSCBA 1992 or section 15(3ZA)(b) of SSCB(NI)A 1992 for each tax year; “lower profits limit” means the lower of the amounts applicable in or under section 15(3)(a) of SSCBA 1992 or section 15(3)(a) of SSCB(NI)A 1992; “main Class 4 percentage” means the percentage applicable for the purposes of section 15(3ZA)(a) of SSCBA 1992 or section 15(3ZA)(a) of SSCB(NI)A 1992 for each tax year; “step 4 amounts” are the amounts attributed to that tax year under paragraph (1), step 4; “upper profits limit” means the higher of the amounts applicable in or under section 15(3)(a) of SSCBA 1992 or section 15(3)(a) of SSCB(NI)A 1992 and the amount applicable in or under section 15(3)(b) of SSCBA 1992 or section 15(3)(b) of SSCB(NI)A 1992.
10 Settlement offers: calculation of settlement amounts (primary method)
(1) The settlement amount in a settlement offer made to P under regulation 9(2) is calculated in accordance with the following method. Step 1 Determine the value of the loans and quasi-loans to which relevant loan charge amounts are connected. Step 2 Determine the other amounts paid to P under the arrangements under which those loans or quasi-loans were made. Step 3 So far as they are not already included in step 1, determine the amounts charged to P (as deductions, fees or otherwise) under those arrangements and add those to the sum determined under step 2. Step 4 Attribute the amounts determined under steps 1 to 3 to tax years, making the assumption for the purpose of that attribution that income tax and national insurance contributions were payable for those tax years in relation to those amounts. Step 5 Determine the total additional amount of income tax and notional national insurance contributions for each of those tax years which would have been payable by P in respect of that year (the “starting amount”) according to the following— determine by the first methodology the amount of income tax and notional national insurance contributions that P was liable to pay for each tax year, not taking into account the amounts attributed to that tax year under step 4; determine by the second methodology the amount of income tax and notional national insurance contributions that P would be liable to pay for each tax year, taking into account the amounts attributed to that tax year under step 4; subtract the amount determined under paragraph (a) from that determined under paragraph (b). Step 6 Reduce the starting amount (but not below nil) for each tax year by the amount that results from adding— the amount of the reduction given by reducing by 10% the first £50,000 of the total amount attributed to the tax year by step 4, and the amount of the reduction given by reducing by 5% the next £100,000 of that total. Step 7 Add together the amounts for each tax year produced by step 6. Step 8 Reduce the amount produced under step 7 by £5,000 (but not below nil) (“the adjusted total amount”). Step 9 Subtract the adjusted total amount from P’s loan charge gross liability. Step 10 If the product of the calculation in step 9 is £70,000 or less, the adjusted total amount is the settlement amount. Step 11 If the product of the calculation in step 9 is more than £70,000, the settlement amount is P’s loan charge gross liability minus £70,000. (2) For the purposes of this regulation, “notional national insurance contributions”— (a) are the amount of contributions that would have been payable, treating total income for income tax purposes as if it represented profits for the purpose of section 15(1) of SSCBA 1992 or section 15(1) of SSCB(NI)A 1992 (Class 4 contributions), (b) are treated as not payable in any tax year if P had attained pensionable age on or before 5th April 2019, as that term is defined by section 122 of SSCBA 1992 and section 121 of SSCB(NI)A 1992, and (c) in respect of traders, apply as if Class 2 contributions were not payable. (3) In step 5(a) of paragraph (1), the “first methodology” is— (a) for income tax, calculate the liability to tax for a tax year by— (i) determining the total income on which P is charged to income tax in that tax year; (ii) applying to that total income the reliefs applicable in that tax year referred to in Step 2 in the calculation in section 23 of ITA 2007, to determine the net income; (iii) deducting from the net income determined under sub-paragraph (ii) the amount of allowances applicable to that tax year under Chapter 2 of Part 3 of ITA 2007 (for the purposes of this sub-paragraph disregarding section 58 of ITA 2007 as it applies to that Chapter and defining “adjusted net income” as the amount of P’s net income for the tax year); (iv) calculating the amount of tax payable on the amount determined under sub-paragraph (iii) using— (aa) the basic rate and the basic rate limit, (bb) the higher rate and the higher rate limit, and (cc) the additional rate, applicable for each tax year; (b) for notional national insurance contributions, for each tax year— (i) apply sub-paragraphs (a)(i) and (ii) (as they apply for income tax) to determine the net income; (ii) apply to the net income— (aa) the main Class 4 percentage to the amount that exceeds the lower profits limit but does not exceed the upper profits limit, and (bb) the additional Class 4 percentage to the amount that exceeds the upper profits limit, to produce the aggregate amount of a Class 4 contribution for that year. (4) In step 5(b) of paragraph (1), the “second methodology” is— (a) for income tax, calculate the liability to tax for a tax year by— (i) determining the total income on which P is charged to income tax, not including the step 4 amounts; (ii) applying to that total income the reliefs applicable in that tax year referred to in Step 2 in the calculation in section 23 of ITA 2007; (iii) adding the step 4 amounts to the amount produced by sub-paragraph (ii), to produce an amount (the “revised net income”); (iv) thereafter, applying paragraphs (3)(a)(iii) and (iv) of the first methodology to the revised net income. (b) for notional national insurance contributions, for each tax year— (i) apply sub-paragraphs (a)(i) to (iii) (as they apply for income tax) to determine the revised net income; (ii) apply to the revised net income— (aa) the main Class 4 percentage to the amount that exceeds the lower profits limit but does not exceed the upper profits limit, and (bb) the additional Class 4 percentage to the amount that exceeds the upper profits limit, to produce the aggregate amount of a Class 4 contribution for that year. (5) In this regulation— “additional Class 4 percentage” means the percentage applicable for the purposes of section 15(3ZA)(b) of SSCBA 1992 or section 15(3ZA)(b) of SSCB(NI)A 1992 for each tax year; “lower profits limit” means the lower of the amounts applicable in or under section 15(3)(a) of SSCBA 1992 or section 15(3)(a) of SSCB(NI)A 1992; “main Class 4 percentage” means the percentage applicable for the purposes of section 15(3ZA)(a) of SSCBA 1992 or section 15(3ZA)(a) of SSCB(NI)A 1992 for each tax year; “step 4 amounts” are the amounts attributed to that tax year under paragraph (1), step 4; “upper profits limit” means the higher of the amounts applicable in or under section 15(3)(a) of SSCBA 1992 or section 15(3)(a) of SSCB(NI)A 1992 and the amount applicable in or under section 15(3)(b) of SSCBA 1992 or section 15(3)(b) of SSCB(NI)A 1992.
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