Director loan account · UK guide · Updated 31 October 2026
Director loan account explained: S455 tax, the 9-month rule, and how to avoid problems.
Written by Iftikhar Rashid FCCA. 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. The S455 rate is 35.75% for loans made on or after 6 April 2026 (33.75% for loans made from 6 April 2022 to 5 April 2026) (see 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: 35.75% on loans made on or after 6 April 2026 (33.75% for loans made from 6 April 2022 to 5 April 2026) of the outstanding overdrawn balance.
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.
Section 455 tax rates and a worked example
Section 455 tax is charged at the dividend upper rate in force when the loan was made. The company pays it, not the director. The rate follows the date of the loan, not the company's year-end.
| Date the loan was made | S455 rate |
|---|---|
| Before 6 April 2016 | 25% |
| 6 April 2016 to 5 April 2022 | 32.5% |
| 6 April 2022 to 5 April 2026 | 33.75% |
| On or after 6 April 2026 | 35.75% |
Source: HMRC Company Taxation Manual CTM61505.
Worked example (illustration)
A company with a 31 March year-end lends its director £20,000 on 1 August 2026. The balance is still outstanding at 31 March 2027. Because the loan was made after 6 April 2026, S455 is 35.75% of £20,000 = £7,150. It is avoided only if the loan is repaid, or cleared by a properly declared dividend or salary, by 1 January 2028 (9 months and 1 day after the year-end).
The same £20,000 lent on 1 August 2025 and not repaid in time would be charged at 33.75% = £6,750.
How S455 is reported, paid and reclaimed
- S455 applies to close companies that lend to a participator (a shareholder, such as a director-shareholder) or their associate. The company reports the loan on supplementary page CT600A with its Company Tax Return. See the CT600A guidance.
- Interest is added to the S455 tax until it is paid or the loan is repaid. The company can reclaim the tax once the loan is repaid, written off or released, but not the interest. Relief is due 9 months and 1 day after the end of the accounting period in which the loan was repaid, written off or released, and the claim must be made within 4 years. See GOV.UK's director's loans guidance.
- If the claim is within 2 years of the end of the period the loan was taken out, use CT600A in the Company Tax Return (or amend it online); otherwise use form L2P. HMRC may also ask a company to confirm online that participators have fully repaid declared loans.
A company director loan works both ways
A director's loan is money you take from your company that is not salary, a dividend, an expense repayment or money you previously paid in or lent to it. You can also lend money to the company. Keep a record in the director's loan account and show what you owe the company, or what it owes you, on the balance sheet in the annual accounts.
Overdrawn: you owe the company
The S455 and beneficial-loan rules on this page apply when you owe the company money.
In credit: the company owes you
The company does not pay Corporation Tax on money you lend it. If you charge interest, it is a company expense and personal income for you to report on Self Assessment. The company pays you the interest less 20% basic rate Income Tax and reports and pays that tax each quarter on form CT61.
Source: GOV.UK: Director's loans.
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 £10,000 across the tax year
- • Or charge HMRC's official rate of interest on the loan
- • Or clear the DLA by year-end via salary/dividend declaration
Source: gov.uk/expenses-and-benefits-loans-provided-to-employees.
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 35.75% for loans made on or after 6 April 2026 (33.75% for loans made from 6 April 2022 to 5 April 2026). It tracks the higher dividend tax rate, which rose by 2 percentage points at the Autumn 2025 Budget. 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 £10,000 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.
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 is treated as a distribution to the director and taxed as dividend income in the year of write-off (and in some cases may also be subject to National Insurance). 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.
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.
What is the Section 455 tax rate?
S455 is charged at the dividend upper rate in force when the loan was made: 35.75% for loans made on or after 6 April 2026, 33.75% for loans from 6 April 2022 to 5 April 2026, 32.5% from 6 April 2016 to 5 April 2022 and 25% before that.
Can the company get S455 tax back?
Yes. The company can reclaim the tax once the loan is repaid, written off or released, but not the interest on it. Relief is due 9 months and 1 day after the end of the accounting period in which the loan was cleared, and the claim must be made within 4 years.
Is S455 tax a personal tax for the director?
No. It is a Corporation Tax charge on the company, reported on CT600A. The director may have separate personal tax if the loan is written off or is a beneficial loan.
Can a director lend money to their own company?
Yes. Money the director lends is recorded as a credit on the director's loan account and the company does not pay Corporation Tax on it. Interest charged to the company is personal income for the director, and the company deducts 20% Income Tax and pays it over using form CT61.
What is the bed and breakfasting rule for director loans?
GOV.UK sets two tests for repaying and borrowing again. If the original loan was more than £5,000 and you take a further loan of £5,000 or more up to 30 days before or after repaying it, the repayment does not clear the original S455 charge. The same applies if the original loan was more than £15,000 and you arrange another loan when you repay it. The charge remains until the original loan is permanently repaid.
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Book a call →Iftikhar Rashid FCCA · 16 years · Specialist in limited company directors