If a director loan account is overdrawn (the company has lent more to the director than they have put in) at the end of the accounting period and remains unpaid 9 months after the year-end, the company must pay s455 tax at 35.75% of the outstanding balance.
If the total outstanding director loans from the company exceed £10,000 at any point during the tax year, HMRC treats the interest-free (or below-market-rate) loan as a taxable benefit in kind. The official HMRC rate for 2026/27 is 2.25% per annum.
The BIK is declared on the director's P11D (or via payrolling of benefits). The company pays Class 1A NI at 15% on the benefit value. The director pays income tax at their marginal rate. Note: the HMRC official rate can change. Check HMRC guidance each April.
| Rule | Detail |
|---|---|
| s455 tax rate | 35.75% of the overdrawn balance outstanding 9 months after the year-end |
| s455 payment deadline | 9 months and 1 day after the accounting year-end (same as CT payment) |
| Repay loan to avoid s455 | Repay before 9 months after year-end to avoid s455 charge |
| s455 refund timing | HMRC refunds s455 tax 9 months after the end of the accounting period in which the loan is repaid |
| BIK threshold | Loans over £10,000 are a taxable benefit if interest-free or below the official rate |
| HMRC official rate 2026/27 | 2.25% per annum (check HMRC each April for updates) |
| Write-off | If the loan is written off, it becomes employment income and is subject to income tax and NI as earnings |
Frequently asked questions
A director loan account (DLA) records all money you take from your company that is not salary, dividend, or expense reimbursement, as well as any money you lend to the company. When you take more out than you put in, the account is overdrawn and the company is effectively lending you money. This creates specific tax obligations.
Section 455 of the Corporation Tax Act 2010 imposes a tax charge of 35.75% on any overdrawn director loan balance that remains outstanding 9 months after the company's accounting year-end. This is a temporary tax paid by the company. It is repaid to the company by HMRC once the loan is repaid, written off, or released, though repayment takes up to 9 months to process.
Yes, if the total outstanding loan balance exceeds £10,000 at any point during the tax year, the director is treated as receiving a taxable benefit-in-kind. This is calculated as the difference between the HMRC official rate of interest (currently 2.25%) and any interest actually charged by the company. The benefit is subject to income tax and employer Class 1A NI.
Yes, but writing off a director loan has tax consequences. The amount written off is treated as a dividend (if the director is also a shareholder) or as employment income. The company also pays Class 1 NI as if it were employment income if treated as earnings. The s455 charge is repaid by HMRC once the write-off is processed.
HMRC's 30-day rule prevents directors from repaying an overdrawn loan shortly before the 9-month deadline and then redrawing the same amount within 30 days. This is known as bed and breakfasting. If triggered, the s455 charge is not released. The rule applies to repayments and redraws within 30 days where the amounts are matched.