Why am I being charged Class 2 National Insurance in my 2024/25 Self-Assessment?

Some self-employed taxpayers are mistakenly charged Class 2 NICs due to an HMRC IT issue. If your profits exceed £12,570, you should only pay Class 4 National Insurance, not Class 2. Always check your self-assessment 2024/25 calculation to ensure it is correct.

Do I need to pay Class 2 NICs through Self-Assessment for 2024/25?

No. From 6 April 2024, Class 2 NICs are voluntary for self-employed individuals with profits below £6,725. Voluntary contributions can help build qualifying years for your State Pension, but if your profits are above this threshold, Class 2 should not appear on your self-assessment.

What should I do if my Self-Assessment shows the wrong Class 2 NIC charge?

If you’ve filed your 2024/25 self-assessment and notice an incorrect Class 2 NIC charge, contact HMRC to request a correction. If you haven’t filed yet, consider waiting until HMRC resolves the issue (expected by September 2025).

What happens if I already paid the incorrect Class 2 NICs through Self-Assessment?

HMRC will refund or credit any incorrect Class 2 NIC payments to your self-assessment account once the error is fixed. Keep proof of payment and HMRC correspondence for reference.

When is the deadline for submitting my 2024/25 Self-Assessment?

The online filing and payment deadline for 2024/25 self-assessment is 31 January 2026. The HMRC Class 2 NIC error does not affect this deadline. Submit on time to avoid late filing penalties.

Loan Charge Settlement 2025/26: What Has Changed

The Loan Charge settlement: what has changed and what it means for taxpayers

The publication of the Independent Loan Charge Review and the Government’s response alongside the Budget on 26 November marked a significant turning point in the long-running loan charge saga.

For many taxpayers affected by the loan charge, the announcement of a new and more generous settlement opportunity offers the first realistic chance in years to bring matters to a fair and affordable conclusion.

This article explains how the new loan settlement works, how it reflects the findings of the independent review, and what key issues remain unresolved as we move into the 2025/26 tax year.

Understanding the loan charge and disguised remuneration

The loan charge was introduced by Finance (No. 2) Act 2017 to address the use of disguised remuneration loan schemes.

These schemes typically involved individuals receiving income in the form of loans, often routed through trusts, with the expectation that the loans would never be repaid and would therefore escape income tax and National Insurance contributions.

Under the legislation, any outstanding loan balances as at 5 April 2019, relating to arrangements entered into since 1999, were treated as a single item of taxable income in the 2018/19 tax year.

Infographic explaining the loan charge and the 2025/26 settlement changes, including unstacking loans, interest write-offs, payment plans, and how Trueman Brown can help.

This approach, commonly referred to as “stacking”, meant that many taxpayers were pushed into higher or additional rate tax bands, even where their underlying earnings were modest.

The Independent Loan Charge Review described the charge as an extraordinary and highly unusual measure.

It overrode normal statutory time limits, applied retrospectively across many years, and removed the benefit of annual personal allowances by aggregating income into one tax year.

These features explain why the loan charge generated such widespread criticism and hardship.

The Morse review and its impact on the loan charge

Concerns about the fairness of the charge led to the Morse review in 2019.

The most significant outcome of that review was to limit the retrospective reach of the charge to arrangements entered into from 2010 onwards, rather than 1999.

The justification was that legislative changes in 2010 made it clear that disguised remuneration schemes were not intended to succeed.

Taxpayers were therefore considered to be “on notice” from that point.

While this change reduced liabilities for some, many advisers felt it disproportionately benefited higher earners, whose use of schemes was often concentrated pre-2010, while offering limited relief to contractors and consultants who continued to be targeted by promoters after 2010.

The unresolved loan charge stalemate before 2025

Despite the Morse review, the charge remained unresolved for tens of thousands of taxpayers.

HMRC data cited in the Independent Loan Charge Review shows that around 45,000 individuals were potentially affected when the charge was announced.

Even after payments and settlements, approximately 32,000 taxpayers were left with outstanding loan charge liabilities.

HMRC’s own figures revealed that compliance activity was costing around £31 million per year, yet progress was painfully slow.

At the prevailing rate of resolution, it would have taken centuries to clear the backlog.

The review concluded that the system had reached a stalemate, causing prolonged uncertainty, financial distress and serious mental health consequences for those affected.

The new loan charge settlement framework for 2025/26

The centrepiece of the Independent Loan Charge Review was a recommendation for a new settlement opportunity, and the Government has accepted this in substance for the 2025/26 tax year.

Unstacking the loan charge

The first step in the new settlement is to recalculate liabilities by “unstacking” loans and taxing them in the years in which they were received.

This removes the most punitive aspect of the loan charge and builds on earlier reforms that allowed spreading over multiple years.

Loan charge reductions for mis-selling

A further reduction reflects the mis-selling of schemes by promoters.

An amount is written off based on a percentage of loan scheme income:

10% on the first £50,000 of income
5% on income between £50,000 and £100,000

The maximum reduction is £10,000 per tax year. No reduction applies above £100,000 of income.

Interest and penalties under the loan charge

All late payment interest relating to the charge will be written off in full.

No penalties will be charged.

This reflects the review’s findings that delays were largely due to HMRC’s strategy rather than taxpayer behaviour.

Additional deductions and caps

An additional £5,000 deduction is available to all individuals in scope, ensuring that those with the smallest liabilities are removed entirely.

The total reduction available under the settlement is capped at £70,000, a point that has attracted some controversy.

Inheritance tax and trusts

No inheritance tax will be collected in relation to trust structures used in schemes. Importantly, this sits outside the £70,000 cap, removing a significant barrier to settlement.

Payment plans under the revised loan charge rules

For the 2025/26 tax year, HMRC will automatically accept payment plans of up to five years, with forward interest.

Longer arrangements remain possible where taxpayers cannot realistically meet these terms, although the Government declined to impose a formal ten-year cap.

How Trueman Brown can help

If you are affected by the charge, professional support is essential.

The new settlement opportunity is welcome, but it is technically complex, and the outcome will depend on accurate calculations, careful negotiations and a clear presentation of your financial circumstances.

Trueman Brown has extensive experience supporting individuals and businesses dealing with liabilities, HMRC settlements and time-to-pay arrangements.

We can help you:

Assess whether the new settlement applies to you
Recalculate liabilities under the unstacking methodology
Engage with HMRC to secure the most favourable settlement terms
Negotiate affordable payment plans
Bring long-running loan charge disputes to a final conclusion

You can contact us directly at mark@truemanbrown.co.uk or call 01708 397262 for a confidential discussion about your circumstances.

FAQ

What is the loan charge?

The loan charge is a tax measure that taxes outstanding balances from disguised remuneration loan schemes as income, primarily affecting contractors, consultants and some employees.

Does the new loan charge settlement apply in 2025/26?

Yes. The revised settlement framework confirmed by the Government applies going forward and is available to those within scope of the Independent Review.

Will interest and penalties still apply?

No. Under the new settlement, all late payment interest is written off and no penalties are charged.

Can my loan charge be written off completely?

In some cases, yes. Individuals with low liabilities, those reliant on state benefits, or those qualifying for deductions may see their loan charge eliminated entirely.

Should I settle my loan charge now?

For most taxpayers, the new settlement represents the best and final opportunity to resolve loan charge liabilities on fair and affordable terms. Taking advice before engaging with HMRC is strongly recommended.