Director pay and tax · 2026/27
Quick answer
A director's loan account records money you take from, or lend to, your company that is not salary, dividends or expenses. If an overdrawn balance remains nine months and one day after the year end, the company pays section 455 tax: 35.75% for loans made from 6 April 2026. Loans over £10,000 can also create a benefit in kind. — LimitedCompany.Accountants, ICAEW-regulated accountants for UK limited companies.
How a director's loan account works in 2026/27: overdrawn balances, the 35.75% section 455 charge, 30-day bed-and-breakfasting rule, benefit in kind and write-offs.
Written and reviewed by Waqas Sagar Member of ICAEW, Fellow of ACCA, Fellow of AAT, a double graduate and entrepreneur at heart, helping startups grow and serving thousands of businesses nationwide with an excellent team. Published by LimitedCompany.Accountants, 12 London Road, Morden, London SM4 5BQ. Reviewed 21 October 2026 against 2026/27 UK rates and current Companies House and HMRC guidance.
Content updated 21 October 2026. Official references are listed below.
Overdrawn loan accounts are one of the most common issues in small companies. They are often created by personal spending on the company card or drawings taken before dividends are declared. The tax consequences are manageable if they are spotted before the year end.
Section 455 at 35.75% for loans made from 6 April 2026
Repayment within nine months avoids the charge
30-day and £5,000 anti-avoidance rules
Benefit in kind above £10,000
Written-off loans taxed as dividend income
A credit balance means the company owes you, for example from money you lent it or expenses you paid personally. You can usually withdraw it tax-free. An overdrawn balance means you owe the company, and the rules below apply.
Keep the loan account reconciled monthly. A balance that only appears when the accounts are prepared limits the options available.
If a close company has an overdrawn loan to a participator at the year end and it is not repaid within nine months and one day, the company pays section 455 tax. The rate is tied to the dividend upper rate: 35.75% for loans made on or after 6 April 2026, and 33.75% for loans made before then.
It is repayable after the loan is repaid, written off or released, but only nine months and one day after the end of the accounting period in which that happens. Section 455 is reported on the CT600 supplementary pages.
Repaying £5,000 or more and redrawing £5,000 or more within 30 days can cause the repayment to be matched against the new loan. Where the balance is £15,000 or more and there is an arrangement to redraw, the 30-day limit does not protect the repayment. Repayments from a genuine dividend or bonus subject to tax are not caught by those matching rules.
If total loans exceed £10,000 at any point in the tax year and interest below HMRC's official rate is charged, the director has a taxable benefit and the company pays Class 1A NIC. Charging interest at or above the official rate avoids the benefit, but interest received is taxable income for the director or company as applicable.
Common routes are repayment from personal funds, a declared dividend if distributable profits are available, or a salary or bonus processed through payroll. Writing the loan off generally creates dividend-type income for a shareholder, while the company still needs to deal with the NIC position. Each option has different tax costs, which we compare before the nine-month deadline.
Primary references
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Frequently asked
35.75% for loans made on or after 6 April 2026, and 33.75% for loans made before that date.
Repaying within nine months of the company's year end avoids section 455 tax for that balance, subject to the anti-avoidance rules.
Yes, if the company has enough distributable profits and the dividend is properly declared. You then pay dividend tax personally.
If loans exceed £10,000 at any time in the tax year and no interest or a low rate is charged, you usually have a benefit in kind.
Yes, but the amount written off is generally taxable on you, and National Insurance consequences can arise.
Yes, after the loan is repaid, but relief is only available nine months and one day after the end of the accounting period of repayment.
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