Director's loan account: rules, s455 tax and how to clear it

A director’s loan account records money you take out of your company that is not salary, dividends or expense repayments, and money you lend to it. If you owe the company money 9 months after its year end, the company pays s455 tax of 35.75% on the balance, refundable once you repay. Loans over £10,000 can also create a taxable benefit for you.

What is a director’s loan account?

A director’s loan account (DLA) is the running record of money moving between you and your company outside your normal pay. GOV.UK’s director’s loans guidance says a loan is money you, or close family, get from the company that is not:

• a salary, dividend or bonus
• a repayment of expenses you paid on the company’s behalf
• money you previously paid into or lent the company

The balance at the year end goes on the company’s balance sheet. If you owe the company, the account is overdrawn. If the company owes you, it is in credit.

When does a company pay s455 tax?

A close company pays s455 tax when a loan to a shareholder (a “participator”) is still outstanding 9 months after the end of the accounting period. The charge comes from section 455 of the Corporation Tax Act 2010, which links the rate to the dividend upper rate.

HMRC’s manual at CTM61505 confirms 35.75% from 6 April 2026, matching the 2026/27 higher dividend rate. The main GOV.UK director’s loans page still quotes 33.75%.

The tax is due 9 months and 1 day after the period ends, with the Corporation Tax bill, and is reported on form CT600A. Our close company rules guide explains which companies are caught.

Worked example

Your company’s year ends on 31 March 2027. You took £20,000 from it in June 2026 and have not repaid any by 1 January 2028.

1. The company owes s455 tax of £20,000 × 35.75% = £7,150.
2. It pays this with its Corporation Tax on 1 January 2028.
3. If you repay the £20,000 later, the company can reclaim the £7,150, but not any interest HMRC charged.

Do you pay personal tax on a director’s loan?

You may pay tax personally if the loan is over £10,000 or interest-free. GOV.UK says that if a loan is over £10,000 at any time, it is treated as a benefit in kind. The company reports it on your P11D and pays employer National Insurance on it.

The benefit is the interest you would have paid at HMRC’s official rate, less any interest you did pay. The official rate is 3.75% from 6 April 2026, the same as 2025/26. HMRC can now change it during the year. Our guide to beneficial loans covers the calculation.

A loan to a director over £10,000 also needs approval from the shareholders under section 207 of the Companies Act 2006. In a one-person company that usually means a written resolution.

The 30-day rule (bed and breakfasting)

Repaying a loan just before the deadline and borrowing it again does not avoid s455. GOV.UK says the company still pays s455 tax on the original loan if:

• the loan was over £5,000 and you took another £5,000 or more within 30 days of repaying it, or
• the loan was over £15,000 and you had arranged to take another loan when you repaid it

How to clear an overdrawn director’s loan account

You can clear an overdrawn DLA in several ways. Each has a different tax cost.

1. Repay in cash from personal funds before the 9-month deadline. No s455 is due.
2. Declare a dividend and credit it to the loan account. You pay dividend tax; the company must have enough distributable profit. See how to declare a dividend.
3. Pay a bonus or extra salary and credit the net amount to the account. Income Tax and National Insurance apply through payroll.
4. Have the company write off the loan. You pay Income Tax on it through Self Assessment, and Class 1 National Insurance is due through payroll.
5. Leave it outstanding and accept the s455 charge, then reclaim it when you repay.

The salary vs dividends calculator helps compare options 2 and 3.

What if the company owes you money?

A DLA in credit is simpler: the company can repay you tax-free. Any interest you charge is a company expense and your income; the company deducts 20% Income Tax and reports it quarterly on form CT61.

Reclaiming s455 tax

The company can reclaim s455 tax 9 months and 1 day after the end of the accounting period in which the loan was repaid, written off or released. It must claim within 4 years. Use form CT600A within 2 years of the loan’s accounting period, or form L2P after that.

What directors should do now

• Reconcile your DLA monthly, not just at the year end.
• Diary the 9-month date and plan repayments well before it.
• Check the rate on each loan; loans from 6 April 2026 carry 35.75%.
• Take advice before a write-off or a repay-and-reborrow.

Frequently asked questions

What is the s455 tax rate for 2026/27?

For loans made on or after 6 April 2026, the s455 rate is 35.75%. Loans made between 6 April 2022 and 5 April 2026 stay at 33.75%.

When is s455 tax due?

It is due 9 months and 1 day after the end of the company’s accounting period, if the loan has not been repaid by then.

Can I get s455 tax back?

Yes. The company can reclaim it once the loan is repaid, written off or released, but not any interest HMRC charged. The claim must be made within 4 years.

Is a director’s loan under £10,000 taxable?

A loan that stays at £10,000 or less throughout the tax year is not a taxable benefit for you. The company may still owe s455 if it is outstanding 9 months after the year end.

Can I clear my director’s loan with a dividend?

Yes, if the company has enough distributable profits. You pay dividend tax on the dividend, and it must be properly declared before it is credited to the account.