Director's loan account explained: s455 tax and the rules for 2026/27
What happens when you take money out of your limited company that is not salary or dividends, and how to avoid an extra tax bill.
The short answer: A director's loan account records money between you and your company that is not salary, dividends or expense repayments. If you owe the company money at the end of its financial year and do not repay it within nine months, the company pays s455 tax of 35.75% on the amount still owed. The tax is refunded once you repay, but the cash is tied up until then.
What is a director's loan account?
A limited company's money belongs to the company, not to you. Every time money moves between you and the company for a reason other than salary, dividends or a business expense being repaid, it goes through your director's loan account.
- Money you take out such as personal bills paid from the company account or cash withdrawals, increases what you owe the company.
- Money you put in such as company costs you pay personally or money you lend to the business, reduces what you owe or means the company owes you.
If the company owes you money, the account is in credit and you can take that money back at any time with no tax to pay. If you owe the company money, the account is overdrawn, and that is when the tax rules below apply.
The s455 tax charge
If your director's loan account is overdrawn at the company's year-end and the loan is not repaid within nine months and one day, the company must pay a temporary tax under section 455. The rate follows the higher rate of dividend tax.
| When the loan was made | s455 rate |
|---|---|
| On or after 6 April 2026 | 35.75% |
| 6 April 2022 to 5 April 2026 | 33.75% |
The company pays s455 at the same time as its Corporation Tax. When the loan is repaid, written off or cleared, the company can claim the tax back from HMRC, but only nine months and one day after the end of the accounting period in which the loan was cleared. That can mean waiting well over a year for the refund.
Example
Your company's year-end is 31 March 2027. In June 2026 you took £20,000 out of the company for a personal purchase, and the account is still £20,000 overdrawn at the year-end. If you repay the £20,000 by 31 December 2027, there is no s455 to pay. If you do not, the company must pay £7,150 (35.75% of £20,000) on 1 January 2028, together with its Corporation Tax.
How to clear an overdrawn account
- Repay it. Pay the money back into the company bank account.
- Declare a dividend. If the company has enough profit after tax, a dividend can be credited to your loan account. You pay dividend tax on it as normal.
- Pay a bonus or salary. This goes through payroll, so Income Tax and National Insurance apply.
- Write it off. The company can formally release the loan. For a shareholder, the amount written off is usually taxed as a dividend, National Insurance may also be due, and the company gets no tax deduction for it.
Watch out for the 30-day rule
You cannot repay a loan just before the deadline and take the money straight back out. If you repay £5,000 or more and borrow £5,000 or more again within 30 days, HMRC ignores the repayment. Where the loan is £15,000 or more and you already plan to borrow again when you repay, the repayment can also be ignored.
Loans over £10,000: benefit in kind
If your loans from the company go above £10,000 at any point in the tax year and you pay less interest than HMRC's official rate, the difference is a taxable benefit. The official rate is 3.75% for 2026/27 and HMRC can review it every quarter.
- The benefit is reported on a P11D form, and you pay Income Tax on it.
- The company pays Class 1A National Insurance at 15% on the benefit.
- Example: a £15,000 interest-free loan for the whole year creates a £562.50 benefit. A higher-rate taxpayer pays £225 tax and the company pays £84.38 in National Insurance.
You can avoid the benefit by paying the company interest at the official rate or more. The interest is taxable income for the company.
Lending money to your company
If you put your own money into the company, it can repay you at any time with no tax to pay. You can also charge the company interest. The interest is a business expense for the company and taxable income for you, and the company usually has to deduct 20% tax from it and report it to HMRC.
Common mistakes to avoid
- Using the company card for personal spending. Every personal payment adds to your loan account.
- Taking "dividends" without enough profit. If the company has no profit to pay them from, the money is treated as a loan.
- Finding out at the year-end. Checking the balance every month or quarter gives you time to fix it.
- Ignoring the account when closing a company. An overdrawn loan account must be repaid before a company is closed, and a liquidator can demand repayment.
Know your director's loan balance before it costs you
Our monthly or quarterly reports show your director's loan balance alongside your profit and estimated Corporation Tax, so there are no surprises at the year-end.
Book a free strategy callFrequently asked questions
Is s455 tax refundable?
Yes. Once the loan is repaid, written off or cleared with a dividend, the company can claim the s455 back. The refund is due nine months and one day after the end of the accounting period in which the loan was cleared.
What is the s455 rate for 2026/27?
35.75% for loans made on or after 6 April 2026, and 33.75% for loans made between 6 April 2022 and 5 April 2026.
Do I pay personal tax on a director's loan?
Not on the loan itself. But if your loans go above £10,000 at any point in the tax year and you pay less than the official rate of interest, you pay Income Tax on the benefit. If the loan is written off, you are usually taxed on it as a dividend.
Can I lend money to my own company?
Yes. The company can repay you at any time with no tax. If you charge interest, it is a business expense for the company and taxable income for you.
What happens to an overdrawn loan account if the company closes?
The loan must be repaid. If the company goes into liquidation, the liquidator can demand that you repay what you owe so it can be paid to creditors.
Related guides
- Salary vs dividends 2026/27: how to pay yourself tax-efficiently
- Corporation Tax rates 2026/27: 19%, 25% and marginal relief
- Sole trader vs limited company 2026/27: which pays less tax?
This guide is general information for the 2026/27 tax year and is not personal tax advice. The rules on director's loans can be complex, especially for larger balances or loans to family members, so speak to an accountant about your situation.
