The contractor loan scheme is that a freelance or contract worker signs a contract of employment with an employer or employment benefit trust, usually located outside mainland UK jurisdiction. The employer then pays the contractor in the form of tax-free ‘loans’ – which, although appearing as loans on paper, are never expected to be repaid. In return, the scheme provider takes a percentage of the contractor’s income as an ‘administration fee’.

Increase in contractor loan schemes, HMRC has taken determining action against users of such arrangements – legislation was introduced covering transactions as far back as 1999, levying charges of up to 100% of the tax avoided as calculated by HMRC on the individuals caught in the net.