Director Loan Accounts: Rules and the 35.75% Section 455 Tax
How director loan accounts work, the section 455 tax charge at 35.75% from April 2026 and how to avoid it.
A director’s loan account (DLA) records money that moves between you and your limited company outside salary, dividends and expense claims. If you owe the company money at the year end and have not repaid it within nine months and one day, the company pays section 455 tax at 35.75% on loans made on or after 6 April 2026 (33.75% on earlier loans). The tax is refundable once the loan is repaid or cleared.
This article explains how a DLA works, the tax consequences of overdrawn and credit balances, how to clear a loan, the benefit-in-kind rules and the mistakes that trigger HMRC enquiries. For the wider picture of paying yourself, read our director pay guide and seven ways to pay yourself.
What is a director’s loan account?
The DLA is a ledger in the company’s accounts. When you take money from the company that is not salary, dividends or an expense reimbursement, it is recorded as a loan to you and the balance moves in the company’s favour. When you pay money into the company, for example to cover start-up costs, it is recorded as a loan from you and the balance moves in your favour. At any date the account shows whether you owe the company or the company owes you.
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See limited company packagesBook a free callOverdrawn and credit balances
| Balance | Meaning | Tax position |
|---|---|---|
| Overdrawn (you owe the company) | You have taken more than you put in | Section 455 tax if not repaid within 9 months and 1 day of the year end. Possible benefit in kind |
| In credit (the company owes you) | You have lent money to the company | You can usually take it back tax free. Interest, if any, is taxable |
Section 455 tax: how it works
If your DLA is overdrawn at the company year end and still outstanding nine months and one day later, the company must pay section 455 tax on the amount outstanding. For loans made on or after 6 April 2026 the rate is 35.75%, and for earlier loans it is 33.75%. The tax is paid with the Corporation Tax and is refundable nine months after the end of the accounting period in which the loan is repaid or cleared. The company reports the loan on form CT600A.
| Loan outstanding | Section 455 tax at 35.75% | Section 455 tax at 33.75% |
|---|---|---|
| £5,000 | £1,787.50 | £1,687.50 |
| £20,000 | £7,150 | £6,750 |
| £50,000 | £17,875 | £16,875 |
Benefit in kind on loans over £10,000
If the total balance you owe the company exceeds £10,000 at any time in the tax year and you pay no interest or less than the official rate, HMRC treats the difference as a taxable benefit for you. The company reports it on form P11D and pays Class 1A National Insurance of 15% on the benefit. Keeping the loan below £10,000 avoids this, as does paying interest at the official rate.
How to clear an overdrawn loan
- Repay it from your own money before the nine-month deadline.
- Declare a dividend to offset the balance, if the company has enough distributable profit. Dividend tax then applies.
- Pay a bonus or salary and use it to clear the balance. PAYE and National Insurance apply.
- Have the loan written off. A written-off loan is treated as a distribution or earnings, taxed on you and may trigger National Insurance. It is usually a last resort.
The 30-day bed and breakfasting rule
Repaying a loan and then redrawing it shortly afterwards to avoid section 455 tax is not effective. If you repay £5,000 or more and take out a new loan within 30 days, the repayment can be treated as not having been made. If the loans are large, repayment and new borrowing within a longer period can also be challenged. Plan repayments properly and keep clear records.
A worked example
A director takes £25,000 from the company during the year with no dividend declared. The company’s year end is 31 March 2027, and the loan was made after 6 April 2026. By 1 January 2028 (nine months and one day later) the loan is still outstanding. The company pays section 455 tax of £8,937.50 (35.75% of £25,000) with its Corporation Tax. Later, the director declares a dividend of £25,000, which clears the loan. The company claims back the £8,937.50 nine months after the end of the accounting period in which the loan was cleared, and the director pays dividend tax on the dividend.
Lending money to your company
If you put your own money into the company, the credit balance is a liability of the company, and you can take it back at any time without tax. You can charge interest, but the company must deduct basic rate income tax and you pay tax on it, so many directors do not. Document loans with a short written agreement.
Keeping the account in order
- Record every payment between you and the company with a clear description.
- Check your balance at least every quarter, not just at the year end.
- Agree salary and dividend plans before you take money out.
- Use a separate business bank account so it is clear which transactions belong to the company.
- Keep minutes and dividend vouchers with the DLA records.
Director loan accounts for London companies
London directors frequently use the DLA at start-up, when personal savings pay for equipment or a deposit on premises, and again when cash is tight. Used carefully it can be an efficient short-term tool. Used loosely it creates avoidable tax and enquiries. We keep DLAs in order for companies in every borough, including Hackney, Lambeth and Barnet. See our limited company packages.
Common DLA mistakes
- Treating the company bank account as a personal account.
- Not checking the balance until the accountant asks.
- Repaying and immediately redrawing the loan.
- Taking dividends when there are not enough profits to support them.
- Forgetting that a written-off loan is taxable.
What happens to an overdrawn loan if the company fails?
If a company goes into liquidation, an overdrawn director’s loan is a debt owed to the company, and the liquidator can demand repayment. That can be a personal liability of the director, so borrowing from a company with weak finances carries risk. Keep your loan within what you can comfortably repay, and take advice if the company is struggling.
What your accountant needs from you
To keep the DLA correct, send your accountant bank statements, a list of money you have put into or taken from the company and any loan agreements. Tell them before you make a large withdrawal so the tax effect can be planned, rather than discovered at the year end.
Frequently asked questions
What is a director’s loan account?
A record of money you owe the company or the company owes you, outside salary, dividends and expense reimbursements.
What is section 455 tax?
A tax charged on the company, at 35.75% for loans made from 6 April 2026, if a director loan remains overdrawn nine months and one day after the year end.
Can I take money out of my company as a loan?
Yes, but it must be recorded, and if it is not repaid or cleared by the deadline the company pays section 455 tax.
Is the section 455 tax refundable?
Yes, once the loan is repaid or cleared, the company can reclaim the tax nine months after the end of the accounting period in which that happens.
Do I pay tax on a loan over £10,000?
If it is interest-free or below the official rate, you may have a taxable benefit and the company pays Class 1A National Insurance.
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