Key takeaways
- A close company is controlled by five or fewer participators, or by any number of directors who are participators; most owner-managed companies are close.
- A loan to a participator not repaid within nine months of the year end triggers a section 455 charge: 35.75% for loans made from 6 April 2026.
- The s455 tax is repaid to the company when the loan is repaid or written off, but not until nine months after the end of that period.
- Anti-avoidance rules stop loans being repaid briefly and then redrawn (bed and breakfasting).
- Benefits provided to participators who are not employees are treated as distributions.
Most family and owner-managed companies are “close companies”. The label matters because of a set of rules designed to stop shareholders extracting money from the company tax-free, the most important being the charge on loans to participators. Directors who borrow from their company need to understand them.
What is a close company?
A UK resident company is close if it is under the control of:
- five or fewer participators, or
- any number of participators who are directors
A participator is broadly anyone with a share or interest in the capital or income of the company, such as a shareholder or loan creditor. When counting, the rights of a person’s associates (close relatives, business partners and certain trustees) are added to their own.
Listed companies with at least 35% of their shares held by the public, and companies controlled by non-close companies, are generally not close.
Loans to participators: the section 455 charge
If a close company lends money to a participator (or their associate), and the loan is still outstanding nine months and one day after the end of the accounting period, the company must pay a temporary tax charge under section 455 Corporation Tax Act 2010.
| Loans made | s455 rate |
|---|---|
| Before 6 April 2016 | 25% |
| 6 April 2016 to 5 April 2022 | 32.5% |
| 6 April 2022 to 5 April 2026 | 33.75% |
| From 6 April 2026 | 35.75% |
The rate is tied to the dividend upper rate, so it rose with the April 2026 dividend tax increase.
How it works
- The charge is reported on supplementary page CT600A and paid with the company’s Corporation Tax.
- It is not a cost: when the loan is repaid, released or written off, the company can reclaim the s455 tax, but only nine months and one day after the end of the accounting period in which the repayment happened.
- If the loan is repaid before the s455 due date, no charge arises.
Example
A company with a 31 March year end lends its director £40,000 in June 2026. By 1 January 2028 (nine months and one day after 31 March 2027), £15,000 is still outstanding. The company pays s455 of £5,362.50 (35.75% × £15,000). If the director repays the £15,000 in May 2028, the company can reclaim the £5,362.50 from 1 January 2030.
Bed and breakfasting
Repaying a loan just before the deadline and then borrowing it again does not work:
- 30-day rule: if repayments of £5,000 or more are made and new loans of £5,000 or more are drawn within 30 days, the repayment is matched with the new loan, not the old one.
- Arrangements rule: where the loan is £15,000 or more and, at the time of repayment, there are arrangements or intentions to redraw £5,000 or more, the repayment is ignored.
Repayments funded by a dividend or bonus that is taxed on the participator are not caught by these rules.
Tax for the director
- An interest-free or low-interest loan over £10,000 at any time in the tax year is a benefit in kind on a director or employee, taxed on interest at HMRC’s official rate, with Class 1A NI for the company.
- If the company writes off or releases the loan, the amount is taxed on the participator as a distribution (dividend income), and for employees Class 1 NI may also be due. The company does not get a tax deduction.
See Self Assessment for company directors and benefits in kind.
Benefits to participators who are not employees
If a close company provides a benefit, such as living accommodation or use of an asset, to a participator who is not a director or employee, the cost is treated as a distribution: taxable on the participator as dividend income and not deductible for the company. Benefits to directors and employees are taxed through the benefit in kind rules instead.
Close investment-holding companies
A close company that mainly holds investments, such as let residential property or shares, rather than trading, is a close investment-holding company (CIC). It pays Corporation Tax at the main rate of 25% on all its profits and cannot use the 19% small profits rate. Companies letting property to unconnected tenants on a commercial basis are usually excluded from CIC status.
Frequently asked questions
What is a close company?
A company controlled by five or fewer participators, or by any number of participators who are also directors. Most owner-managed companies are close.
What is the section 455 tax rate in 2026/27?
35.75% for loans made on or after 6 April 2026, up from 33.75%, because the rate is linked to the dividend upper rate.
How do I avoid a section 455 charge?
Repay the loan within nine months of the company’s year end, for example from a declared dividend or bonus, without redrawing it under arrangements caught by the bed and breakfasting rules.
Is section 455 tax refundable?
Yes. It is repaid to the company once the loan is repaid, released or written off, nine months and one day after the end of the accounting period in which that happens.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.