S455 tax explained: director's loan account tax

Most owner managed limited companies are close companies. If the company lends money to a director or shareholder and the balance remains outstanding nine months and one day after the accounting period ends, the company normally pays section 455 tax at 35.75% of that balance.

The charge also reaches loans to certain associates. It is reported with the CT600 and paid on the Corporation Tax timetable, but it is not ordinary Corporation Tax and it does not reduce company profit.

A company with a 31 March 2027 year end has a £20,000 overdrawn director's loan. If £12,000 remains unpaid on 1 January 2028, the s455 charge is £4,050. Repaying £8,000 before that date limited the charge, but the remaining debt still belongs to the company.

If the company later receives repayment, relief is normally claimable nine months and one day after the end of the accounting period in which the repayment occurred. That delay makes cash planning important.

S455 and the employment benefit rules are separate. If the loan exceeds £10,000 at any point and the director does not pay interest at least equal to HMRC's official rate, a taxable beneficial loan can arise. The company may need a P11D and Class 1A National Insurance.

The £10,000 threshold does not exempt a smaller balance from s455. A loan of £9,000 can still attract section 455 tax if it is unpaid at the deadline.

A director can repay cash, offset a valid expense claim or, where distributable reserves exist, use a properly declared dividend. A salary or bonus must run through payroll. Each option has a different personal and company tax result.

Repaying shortly before the deadline and borrowing again can be caught by the 30 day rule and wider arrangements rule. Transactions must be genuine, documented and reflected in the bookkeeping.

The loan and charge are reported in the company tax return. When relief becomes due, it can be claimed through a later CT600 or the appropriate standalone HMRC process. Keep board records, loan movements, repayments and dividend paperwork together.

Rates and deadlines are reviewed for 2026/27, but HMRC interest rates and individual circumstances can change the result. Check the linked official guidance or ask us before acting.