Director loan account · UK guide · Updated May 2026
Director loan account explained: S455 tax, the 9-month rule, and how to avoid problems.
Written by Iftikhar Rashid FCCA — Managing Partner, RR Accountants. 16 years in practice.
What is a director loan account?
A director loan account (DLA) tracks all money between a director and their limited company that is not salary, dividends, or expense reimbursement. When a director withdraws money informally (not as salary or dividend), it goes to the DLA as a loan. If the DLA is overdrawn at the company's year-end and not repaid within 9 months and 1 day, the company owes Section 455 tax on the outstanding balance. This is one of the most common and avoidable tax problems for limited company directors. [VERIFY: S455 rate and rules at gov.uk]
The Section 455 timeline
Company year-end
DLA balance is assessed. If overdrawn, the S455 clock starts.
9 months + 1 day after year-end
If the overdrawn DLA is not repaid, S455 tax is due. For a 31 March year-end: 1 January.
S455 tax due with CT return
S455 is paid at the same time as the CT600 and corporation tax payment. Rate: [VERIFY at gov.uk].
Director repays the loan later
S455 tax is repayable by HMRC — but only 9 months after the end of the accounting period in which the loan is repaid. You may wait up to 9 months to get the S455 back.
'Bed and breakfasting' — HMRC trap
Repaying just before the 9-month deadline then re-borrowing within 30 days is targeted by HMRC as tax avoidance. The S455 charge still applies. [VERIFY current bed-and-breakfasting rules at gov.uk]
Beneficial loans — the P11D obligation
If the total outstanding loan balance from the company to the director exceeds the beneficial loan threshold at any point during the tax year, and no interest (or below HMRC's official rate) is charged, the director has a benefit in kind.
What it triggers
- • Director reports imputed interest benefit on self-assessment
- • Company reports on P11D by 6 July following the tax year
- • Class 1A NI paid by company on the benefit
How to avoid it
- • Keep loan balance below the threshold [VERIFY at gov.uk]
- • Or charge HMRC's official rate of interest on the loan
- • Or clear the DLA by year-end via salary/dividend declaration
[VERIFY: current beneficial loan threshold and HMRC official rate at gov.uk]
Director loan account — FAQs
What is a director loan account?
A director loan account (DLA) is a running balance in the company's books that tracks all money transactions between a director and the company that are not salary, dividends, or expense reimbursements. When a director withdraws money from the company that isn't salary or dividend, it goes to the DLA as a loan from the company to the director. When a director puts money into the company, it creates a credit on the DLA.
What is Section 455 tax on a director loan?
If a director loan account is overdrawn at the company's year-end and the balance is not repaid within 9 months and 1 day of that year-end, the company must pay Section 455 tax (also called close company tax) on the outstanding amount. The S455 rate is set at the higher dividend tax rate. [VERIFY: current S455 rate at gov.uk]. The S455 tax is repaid by HMRC when the loan is eventually repaid — but this can take up to 9 months after repayment to recover.
What is the 9-month repayment rule?
If a director's loan account is overdrawn at the company's year-end, the director must repay the outstanding balance within 9 months and 1 day of the year-end to avoid the S455 charge. For a company with a 31 March year-end: S455 applies to any overdrawn DLA balance not repaid by 1 January. The repayment must be genuine — HMRC specifically targets 'bed and breakfasting' (repaying and immediately re-borrowing within 30 days to avoid the charge).
What is a beneficial loan and when does it apply?
A beneficial loan is a director loan from the company where no interest is charged (or interest is below HMRC's official rate). If the total outstanding loan balance across all loans from the company exceeds a threshold amount at any time, it becomes a benefit in kind. The director must report the imputed interest benefit on their self-assessment return, and the company must report it on a P11D. [VERIFY: current official rate and beneficial loan threshold at gov.uk]
Can I take a director loan instead of salary or dividends?
Directors sometimes use DLAs as a short-term liquidity mechanism — withdrawing money as a loan and clearing it later by declaring a dividend. This is legitimate if managed correctly. It becomes a problem when: (a) the loan is not repaid within 9 months of year-end, triggering S455; (b) the loan is not declared on the balance sheet; (c) there are no distributable profits to clear it with dividends. Do not treat the DLA as an informal bank account.
What happens if I never repay an overdrawn director loan?
If the loan is formally written off by the company, it becomes income for the director — subject to income tax and Class 1 NI in the year of write-off. The company also cannot deduct the written-off loan as a business expense. Writing off a DLA is often worse than managing it through dividend declaration. [VERIFY current write-off rules at gov.uk]
How do I avoid director loan account problems?
Three practices prevent most DLA issues: (1) only take money from the company as salary or dividends — not informal drawings; (2) if you must use the DLA, track the balance monthly and plan to clear it before the 9-month deadline; (3) have your accountant review the DLA balance before every year-end. Compliance Vault™ includes DLA tracking for every limited company client.
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Book a call →Iftikhar Rashid FCCA · 16 years · Specialist in limited company directors