Director’s loan accounts explained
A director’s loan account records money moving between you and your company that is not salary, dividend or expense reimbursement. If it is overdrawn at your year end and still unpaid nine months and one day later, the company pays a temporary 33.75% S455 charge on the outstanding balance.
What ends up in it
Money you take out that is not payroll, not a declared dividend and not a reimbursed business expense. Personal spending on the company card. A transfer to cover a personal bill. Drawings taken through the year in anticipation of a dividend that was never formally declared.
It runs the other way too. If you pay company costs personally or lend it money to get started, the account is in credit and the company can repay you with no tax at all.
The S455 charge
If the account is overdrawn at the company year end and still overdrawn nine months and one day later, the company pays 33.75% of the outstanding balance to HMRC.
It is refundable. Once the loan is repaid, the company reclaims the charge, but not until nine months after the end of the accounting period in which the repayment happened. So money can be tied up with HMRC for the best part of two years.
| Event | Consequence |
|---|---|
| Overdrawn at year end, repaid within 9 months | No S455 charge |
| Still overdrawn after 9 months and 1 day | Company pays 33.75% of the balance |
| Loan later repaid | S455 reclaimable, 9 months after that period end |
| Loan written off | Taxed on you as a dividend, plus Class 1 NI |
Do not try to dodge it by repaying just before year end and withdrawing again straight after. The bed and breakfasting rules catch repayments of £5,000 or more followed by a new loan within 30 days, and a wider rule catches arrangements over £15,000.
Interest and benefit in kind
If the balance exceeds £10,000 at any point in the tax year, the loan counts as a benefit in kind unless the company charges you at least HMRC's official rate of interest.
That means a P11D entry, Class 1A National Insurance for the company at 15%, and income tax for you. Charging the official rate instead avoids the reporting entirely.
Clearing it properly
Declare a dividend, if there are distributable reserves. You pay dividend tax, but at 8.75% or 33.75% rather than leaving the S455 charge outstanding.
Put through a bonus, which is deductible for the company but attracts income tax and both sides of National Insurance.
Repay it in cash from personal funds.
Or offset it against a credit balance owed to you, where one exists.
Writing it off is the worst option: taxable on you as a dividend, with Class 1 National Insurance on top, and not deductible for the company.
This guide is general information, current at 10 November 2026. Tax rules change and depend on your circumstances. Please take advice before acting on it.