How Director Loan Accounts and S455 Tax Work
A director’s loan account records money owed between you and your limited company. If you borrow from the company and do not pay off the balance, then the company will be subject to a Section 455 tax charge.
In case of qualifying loans after 6 April 2026, the S455 tax charge rate is 35.75%. There could also be another tax charge on interest-free and low-interest loans.
The amount borrowed matters. So do the loan date, your company’s accounting period and the date you repay it.
What goes into a director’s loan account?
Money taken from your company needs a clear purpose. It may be salary, a dividend, an expense repayment or repayment of money you previously lent the business.
A withdrawal outside those categories may create a director’s loan.
Your loan account tracks the amounts you borrow and repay. It also records money you lend to the company.
| Account position | What it means |
| In credit | The company owes you money |
| Overdrawn | You owe the company money |
| Cleared | Neither side owes anything through the account |
The year-end balance belongs in the company’s annual accounts.
For example, suppose you lend your company £8,000. It later repays £5,000. Your account remains £3,000 in credit.
If you then take another £4,000 without treating it as salary, a valid dividend or an expense repayment, you have borrowed £1,000.
Personal bills paid through the company can also increase the amount you owe. A company card payment does not become a business expense simply because the business paid it.
When does S455 tax apply?
Section 455 focuses on loans from a close company to its shareholders or their associates.
In general, a close company is one that is controlled by no more than five shareholders or by the directors who are themselves shareholders.
Being a director alone does not automatically bring every loan within S455. Ownership and the borrower’s relationship with shareholders also matter.
Where a qualifying loan remains outstanding after the repayment window, the company pays S455 tax.
The applicable rate depends on when the loan was made:
| Date the loan was made | S455 rate |
| 6 April 2016 to 5 April 2022 | 32.5% |
| 6 April 2022 to 5 April 2026 | 33.75% |
| From 6 April 2026 | 35.75% |
An older loan does not automatically move to the new rate. Where withdrawals span different rate periods, the dates need checking.
The same outstanding loan is not charged again every year. Further borrowing can create a further charge.
How long do you have to repay the loan?
To prevent an S455 payment becoming due, a qualifying loan can normally be repaid within nine months after the end of the company’s Corporation Tax accounting period.
The tax payment deadline is nine months and one day after that period ends. This is based on the company’s accounting period, not your personal tax year.
A £20,000 director’s loan example
Suppose a director-shareholder borrows £20,000 on 1 September 2026. The company’s accounting period ends on 31 December 2026.
The full loan remains unpaid at that year-end.
| Event | Date or amount |
| Loan taken | 1 September 2026 |
| Accounting period ends | 31 December 2026 |
| Nine-month repayment window ends | 30 September 2027 |
| S455 payment due | 1 October 2027 |
| S455 if the full loan remains outstanding | £7,150 |
The calculation is:
£20,000 × 35.75% = £7,150
If the director genuinely repays £12,000 within the repayment window, £8,000 remains. The S455 charge would then be £2,860, assuming no repayment restrictions apply.
Paying that tax does not clear the director’s debt. The director still owes the company the remaining loan.
The £10,000 rule is a separate tax test
An overdrawn director’s loan account can create more than one tax issue.
S455 concerns the company’s loan to a shareholder. The beneficial loan rules concern the personal benefit of borrowing cheaply.
The small-loan exception generally applies in situations where the aggregate balance of eligible beneficial loans never exceeds £10,000 within the tax year. Going above that amount can remove the exemption.
Where a taxable benefit arises:
- The director pays Income Tax on the benefit.
- The company reports the benefit on form P11D.
- The company pays Class 1A National Insurance on its value.
The benefit will be the interest saving and not the total loan.
The official HMRC interest rate for 6 April 2026 as at October 2026 is 3.75%. Use the rate applicable to the loan period when calculating any benefit.
These rules operate separately. Repaying before the S455 deadline does not necessarily remove a benefit that arose earlier. Equally, paying sufficient interest does not remove an S455 charge on an overdue loan.
How can you clear an overdrawn loan account?
The clearest method is to repay the company using your own money. Keep the transfer reference and update the loan account.
There might be other means, but they all require due consideration.
Credit a valid dividend
A dividend can be credited against the amount you owe.
The company must have sufficient available profits to support it. It also needs the correct approval, minutes and dividend voucher. Cash in the bank alone does not establish that a dividend is available.
The dividend may create personal tax for you, even though no cash reaches your bank account.
Use salary or a bonus
Salary or a bonus can also help clear the account. The company must channel the payment via the payroll and account for the PAYE and National Insurance.
The net amount after making the deduction can be used to repay the loan. A £5,000 gross bonus will not necessarily clear a £5,000 debt.
Don’t backdate dividends or payroll entries in order to reflect a prior withdrawal as already completed. Enter the transaction at the time it actually occurs.
Why repaying and borrowing again can fail
A brief repayment may not secure S455 relief if you take the money out again.
According to the 30-day rule, repayments of an amount of at least £5,000 may be offset against borrowings of at least £5,000 during the same 30-day period. The borrowings should be made after the accounting period in which the loans were made.
That matching can leave the original loan treated as unpaid for relief purposes.
There is also a wider arrangements rule. It can apply where:
- At least £15,000 is outstanding before repayment.
- Arrangements already exist to borrow at least £5,000 again.
This rule is not limited to 30 days. Waiting until day 31 does not automatically solve the problem.
Specific exclusions can apply to taxable dividends or bonuses credited directly to the loan account. The details matter, so review a planned repayment and redraw before moving funds.
Can the company reclaim S455 tax?
Yes. The business should be able to take relief if the debt was paid back, discharged, or written off. Partial repayment can produce proportionate relief.
However, repayment of the loan does not produce an immediate tax refund.
Relief is available nine months and a day following the expiration of the accounting period within which the repayment has been made.
For example, assume a company keeps a 31 December year-end. It repays a previously taxed loan in November 2027. Relief becomes available on 1 October 2028.
The claim may use CT600A or form L2P, depending on its timing. Interest paid on late S455 tax cannot be reclaimed as part of the loan relief.
A claim generally needs to be made within four years from the end of the financial year in which repayment, release or write-off happens.
Is writing off the loan a simple alternative?
Writing off a loan can create personal Income Tax and National Insurance consequences. The company may obtain S455 relief while the director faces a separate tax liability.
It therefore needs a full calculation before any decision is made.
What if you lend money to the company?
When you provide funds to the business, the loan account is in credit. S455 does not apply merely because the company owes you.
The company does not pay Corporation Tax on the money you lend it.
If you charge interest, that interest is personal income for you. The company normally deducts Income Tax at 20% and reports and pays it quarterly using form CT61. You report the interest through Self Assessment.
Keep the original loan amount separate from interest in your records. They have different tax treatment.
Keep the loan account under review
Check the account during the year, rather than waiting until the annual accounts are prepared.
A useful record should show:
- Each withdrawal and repayment date.
- Personal costs paid by the company.
- Money you have lent to the business.
- Dividends or net salary credited against the debt.
- Interest charged and paid.
- The highest balance during the personal tax year.
Before taking another withdrawal, find out what you already owe. Then check whether the company needs that cash for wages, suppliers or tax.
For help reviewing your director’s loan account, book a meeting with RMA Accountants LTD. Bring your transaction history and company year-end details so the balance, deadlines and repayment options can be checked.
