The short answer
A director’s loan account records money you take from, or put into, your company outside salary, dividends and expenses. If the account is overdrawn at the year end and not repaid within nine months and one day, the company pays section 455 tax of 35.75% of the balance, which HMRC refunds once the loan is cleared.
Checked 26 October 2026. Rates for 2026/27.Key facts
| Fact | Detail |
|---|---|
| Section 455 rate | 35.75% of the loan balance |
| Repayment deadline | 9 months and 1 day after year end |
| Benefit-in-kind threshold | Loans over £10,000 |
| Refund | Nine months after the end of the period in which loan repaid |
| Where it appears | CT600 and balance sheet |
What a director’s loan account is
A director’s loan account, usually shortened to DLA, is a ledger that shows the running balance between you and your company. Whenever you pay a business cost personally, or lend the company money, the account moves in your favour: the company owes you. Whenever you take money out that is not salary, a dividend or an expense repayment, the account moves the other way: you owe the company.
The balance at the end of each financial year is what matters. If the company owes you money, there is no tax problem. If you owe the company money, the account is overdrawn and the tax rules start to bite.
What section 455 tax is and how it is calculated
Section 455 of the Corporation Tax Act 2010 charges a company tax when a close company lends money to a participator, which for most small companies means a director or shareholder. The charge is 35.75% of the outstanding loan for loans made on or after 6 April 2026, matching the upper rate of dividend tax. For loans made before that date the rate stays at @@35.75%.
The tax is paid by the company, not by you, and is due nine months and one day after the end of the accounting period, which is the same date Corporation Tax is due. It is reported on the CT600 return. The important point is that section 455 tax is not a penalty. It is a temporary deposit that HMRC releases when the loan is repaid, written off or released, but cash flow can be tight while it is outstanding.
The nine-month window
If you repay the loan, in full, within nine months and one day of the year end, no section 455 tax is due at all. That window is why the year-end review of the director’s loan account is one of the most useful conversations you can have with an accountant.
Ways to clear the account before the deadline include repaying cash from your personal bank account, declaring a dividend from available profits so the balance is credited, or voting a bonus through payroll, though that carries PAYE and National Insurance. Each method has different tax consequences, so the cheapest route depends on your profit and tax bands.
Bed and breakfasting and other traps
HMRC has rules to stop people repaying a large loan just before the deadline and then borrowing it again. If you repay £5,000 or more and then take a new loan of £5,000 or more within 30 days, the repayment can be matched against the new loan, so section 455 tax may still apply. If the repayment and new loan total more than £15,000 and are made before the deadline, the anti-avoidance rule can apply even beyond 30 days where there is an intention to re-borrow.
This is why a plain, orderly repayment with a genuine gap is safer than shuffling money around at the year end.
Benefit in kind on overdrawn loans
If your overdrawn balance exceeds £10,000 at any point in the tax year, HMRC treats the interest-free or cheap loan as a taxable benefit in kind. The company reports it on form P11D, pays Class 1A National Insurance at 15% on the benefit, and you pay income tax on it. The benefit is calculated using the official rate of interest set by HMRC.
You can avoid the benefit by paying interest at or above the official rate, but that interest is itself income for the company. For small overdrawn balances under £10,000 there is no benefit in kind.
How to keep the account in order
Good habits keep a loan account healthy.
Record every personal payment for the business and every withdrawal as it happens, with a clear description.
Do not use the company bank card for personal spending unless you intend to repay it.
Review the balance monthly rather than waiting for year end accounts.
Keep management accounts up to date so you know whether a dividend is possible before using it to clear the account.
Talk to your accountant before the year end so any clearance plan is settled before the nine-month clock starts.
A worked example of section 455 tax
Imagine your company’s year ends on 31 March 2027 and the director’s loan account is overdrawn by £20,000 on that date. You have until 1 January 2028, which is nine months and one day later, to clear it. If you do nothing, the company pays section 455 tax of 35.75% of £20,000, which is £6,750, along with its Corporation Tax on the same date.
If you repay the £20,000 in March 2028, after the deadline, the company can claim the £7,150 back, but not until nine months after the end of the accounting period in which the repayment was made. That means the company would be out of pocket for well over a year, which is why prompt clearance is so valuable. If you repay in full before 1 January 2028, no section 455 tax is due at all.
Writing off or releasing a loan
Sometimes a loan will never be repaid. The company can choose to write it off, but this has consequences. A written-off loan to a director is treated as a distribution, so you may be taxed as though you had received a dividend, and the company does not get a deduction. If the director is also an employee, HMRC may instead treat it as earnings, leading to PAYE and National Insurance and a Corporation Tax deduction for the company.
Because the tax outcome differs so much, writing off a balance should be a considered decision. In many cases it is cheaper to clear the loan with a properly declared dividend within the nine-month window than to leave it and write it off later.
The bottom line
A director’s loan account records money you take from, or put into, your company outside salary, dividends and expenses. If you would rather not do it alone, our fixed fees start at £45.83 + VAT a month.
Frequently asked questions
What is section 455 tax?
It is a charge on the company, at 35.75% of an overdrawn director’s loan, which applies if the loan is not repaid within nine months and one day of the year end. It is refundable by HMRC once the loan is cleared.
Can a company lend money to a director?
Yes, in most cases, though shareholder approval may be needed for larger loans. Because of section 455 tax and benefit in kind rules, borrowing is rarely the cheapest way to take money from a company.
Is a credit balance on a director’s loan account taxable?
No. A credit balance means the company owes you money, and repayments of that credit are not taxable income. The company can pay you back at any time without tax.
How do I clear an overdrawn director’s loan account?
You can repay the cash personally, declare a dividend to offset the balance, or pay a bonus or salary through payroll. Each option has a different tax cost, so check the calculation before choosing.
Does section 455 tax apply to every company?
It applies to close companies, which includes most small family or owner-managed businesses. Where a loan is made to a participator, usually a director or shareholder, the charge applies if the loan remains unpaid after the deadline.
Can I lend money to my company instead?
Yes. If you put money into the company, the account is in credit and no section 455 tax arises. The company can repay you without tax, which makes director loans in that direction useful for cash flow.
This article is general information, not personal tax or financial advice. Rules and rates change, so check GOV.UK or speak to an accountant about your circumstances. Rates shown are for 2026/27, last checked November 2026.