Director's loan account
A director's loan account records money moving between a director and their company that is not salary, dividend or expense repayment. If the account is overdrawn nine months and one day after the year end, the company pays S455 tax at 35.75% on the balance until it is repaid.
Also known as: directors loan account, DLA, director's loan
How it works
Every limited company keeps a running record of what the director owes the company and what the company owes the director. That record is the director's loan account. Buying something personal on the company card, taking cash before profits are known, or lending your own money into the business all pass through it.
The account can sit either way round. If you have put money in, the company owes you and you can draw it back with no tax. If you have taken money out that is not salary, a properly declared dividend or a reimbursed business cost, the account is overdrawn and you owe the company.
An overdrawn account has three consequences. First, S455 tax at 35.75% of the outstanding balance is payable by the company if the loan is still outstanding nine months and one day after the year end. It is refundable, but only nine months after the end of the accounting period in which you repay, so the cash can be tied up for close to two years. Second, if the balance exceeds £10,000 at any point and you pay no interest, the difference against HMRC's official rate is a benefit in kind reported on a P11D, with Class 1A National Insurance for the company. Third, if the loan is written off it is taxed on you broadly as dividend income.
Repaying just before the deadline and taking the same money out again shortly after does not work. Anti-avoidance rules on repayment, known as bed and breakfasting, can treat the repayment as never having happened where £5,000 or more is redrawn within 30 days, or where there are arrangements to redraw.
The practical route out is usually a planned mix: a dividend where there are distributable reserves, a bonus through payroll, or a formal repayment schedule. Which one costs least depends on your other income, so run the numbers before the nine-month date rather than after it.
Worked example (2026/27)
Overdrawn loan of £30,000 at the year end (2026/27)
| Balance owed by director at year end | £30,000 |
|---|---|
| Repaid within 9 months and 1 day | £10,000 |
| Balance charged to S455 | £20,000 |
| S455 at 35.75% | £6,750 |
| Benefit in kind (balance over £10,000, no interest paid) | Reportable on P11D |
S455 is repaid to the company nine months after the end of the accounting period in which the loan is cleared.
Who this affects
- Contractors drawing monthly amounts before profit is confirmed
- E-commerce sellers paying personal costs from the trading account
- SaaS founders who lend savings into the company and later withdraw them
- Landlords moving cash between a property company and personal accounts
- Any director of a close company, which covers most owner-managed businesses
Common mistakes
- Assuming S455 is a penalty rather than refundable tax, and ignoring the cash-flow cost
- Clearing the account for a few days around the year end and redrawing straight after
- Declaring a dividend with no distributable reserves to clear the balance
- Missing the P11D where the balance passed £10,000 during the year
Frequently asked questions
How much can I borrow from my company?
There is no tax limit, but above £10,000 an interest-free loan creates a benefit in kind, and company law requires shareholder approval for loans over £10,000.
Is S455 tax repaid?
Yes. It is repaid once the loan is cleared, but not until nine months after the end of the accounting period in which the repayment happened.
Can I clear the loan with a dividend?
Only if the company has distributable reserves and the dividend is properly declared and documented. The dividend is then taxed on you personally in the year it is declared.
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Reviewed by Waqas Sagar ACA FCCA FMAAT · Last reviewed 13 September 2026 · Figures for 2026/27 · About our practice
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