Section 455 tax
Section 455 tax is a company charge of 35.75% on a director's loan still outstanding nine months and one day after the accounting period ends. It is refundable once the loan is repaid, but the refund is slow.
Also known as: s455 charge, loans to participators charge
How it works
Where a close company lends money to a shareholder or director and the balance is still outstanding nine months and one day after the period end, the company pays section 455 tax on it. The rate tracks the dividend upper rate, so it is 35.75% for loans made on or after 6 April 2026 and 33.75% for loans made before that date.
The charge is not corporation tax on profit; it is a deposit against the risk that profit is being extracted without dividend tax. Repay the loan and the company can reclaim it — but relief is only given nine months and one day after the end of the accounting period in which the repayment happens, so the money can sit with HMRC for up to two years.
Two anti-avoidance rules bite hard. Bed and breakfasting, where a loan is repaid shortly before the deadline and redrawn afterwards, is blocked where £5,000 or more is redrawn within thirty days. Arrangements to repay are treated similarly. Writing the loan off does not avoid the problem either: the write-off is taxed on the director as a distribution and carries National Insurance consequences.
A separate benefit in kind arises where the balance exceeds £10,000 and no interest, or below HMRC's official rate, is charged. That is reported on the P11D and attracts Class 1A for the company.
Worked example (2026/27)
£40,000 loan outstanding at the deadline
| Overdrawn balance nine months after year end | £40,000 |
|---|---|
| Section 455 at 35.75% | £14,300 |
| Refundable | Yes, after repayment |
| When the refund arrives | Nine months and a day after the period of repayment |
Loans made before 6 April 2026 are charged at the previous 33.75% rate.
Who this affects
- Directors drawing ahead of profit and running the loan account overdrawn
- Companies without distributable reserves where dividends were paid anyway
- Directors who repay just before the deadline and redraw shortly after
- Any balance over £10,000 with no interest charged
Common mistakes
- Treating the charge as permanent when it is refundable, or as instantly refundable when it is not
- Redrawing within thirty days and triggering the anti-avoidance rules
- Writing off the loan and creating an income tax and National Insurance charge instead
- Forgetting the separate benefit in kind on an interest-free balance
Frequently asked questions
What is the section 455 rate?
35.75% for loans made on or after 6 April 2026, matching the dividend upper rate. Loans made before that date remain charged at 33.75%.
When is section 455 tax due?
With the corporation tax for the period, nine months and one day after the accounting period ends, if the loan is still outstanding then.
How do I get the money back?
Repay, release or write off the loan, then claim relief. It is given nine months and one day after the end of the accounting period in which the repayment occurred.
Can I repay and immediately redraw?
No. Where £5,000 or more is redrawn within thirty days, the repayment is matched against the new loan and the charge stands.
Related terms
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Reviewed by Waqas Sagar ACA FCCA FMAAT · Last reviewed 13 September 2026 · Figures for 2026/27 · About our practice
Official sources
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