Director's loan account
A directors loan account is the record of money passing between a company and a director outside salary, dividends and expenses. While the director owes the company, the account is overdrawn, and that is where the tax charges start.
Updated 10 September 2026 · Tax year 2026/27
Which way does it go #
| Balance | Meaning | Tax consequence |
|---|---|---|
| Overdrawn, a debit balance | You owe the company | Possible s455 charge on the company and a benefit in kind on you |
| In credit, a credit balance | The company owes you | None. You can draw it back tax free, and the company may pay you interest |
A credit balance is common where a director paid for something personally, or lent the company start-up funds. That money can come back out without any tax, because it was already yours.
What an overdrawn director's loan account costs #
An overdrawn directors loan account carries two separate charges, one on the company and one on you personally. They are assessed independently, so it is possible to face both, either, or neither depending on the size of the balance and how long it sits there.
1. The s455 charge on the company
If the loan is still outstanding nine months and one day after the end of the accounting period, the company pays s455 tax on the balance. It is due at the same time as Corporation Tax.
| Loan outstanding | Loan made on or after 6 Apr 2026 35.75% | Loan made before 33.75% | Difference |
|---|---|---|---|
| £10,000.00 | £3,575.00 | £3,375.00 | £200.00 |
| £25,000.00 | £8,937.50 | £8,437.50 | £500.00 |
| £50,000.00 | £17,875.00 | £16,875.00 | £1,000.00 |
It is a deposit, not a permanent cost. When the loan is repaid, released or written off, the company reclaims it. But the refund is not immediate, so a large overdrawn balance is a cash flow problem even though the tax eventually comes back.
2. A benefit in kind on you
If the balance exceeds £10,000.00 at any point in the tax year and you are charged less than HMRC's official rate of interest, the loan is a taxable benefit. The official rate for 2026/27 is 3.75%.
Stay at or below £10,000.00 throughout the whole year and the benefit in kind does not arise. Go a pound over at any point and it does, on the whole balance, not just the excess.
The company also pays Class 1A National Insurance on the benefit, and it goes on a P11D. Charging yourself interest at the official rate removes the benefit entirely, though the company then has interest income to declare.
The director’s loan calculator works out the s455 charge, the deadline from your own year end, and the benefit in kind, from one set of figures.
The nine month deadline #
This is the whole game. Repay before nine months and one day after the accounting period end and there is no s455 charge at all.
| Year end | Repay by | Otherwise s455 due |
|---|---|---|
| 31 March | 1 January | 1 January |
| 30 June | 1 April | 1 April |
| 31 December | 1 October | 1 October |
A directors loan account in credit #
Everything above assumes the account is overdrawn, which is the case that costs money. A directors loan account in credit is the opposite: the company owes you, usually because you put money in to get it started or paid company costs personally.
There is no s455, no benefit in kind and no tax charge at all on drawing it back down. It is the return of your own money. The company can repay it whenever it has the cash, and doing so before taking dividends is usually the cheaper order.
The company can also pay you interest on a credit balance. That is a deductible expense for the company and taxable interest income for you, with the company deducting 20% at source and reporting it. Worth doing only where the balance is large enough to matter.
A directors loan account example #
A directors loan account example makes the two charges concrete. Say the director owes the company £30,000 at the year end and repays none of it within the nine month window. The company pays s455 at 35.75%, which is £10,725.00. Separately the loan is over the £10,000.00 threshold and no interest was charged, so there is a benefit in kind of £1,125.00 and Class 1A National Insurance on top.
Repay the whole £30,000 by the deadline and the s455 disappears entirely. The benefit in kind does not: that is measured across the tax year and is only removed by charging interest at the official rate. The director’s loan calculator works both out from your own figures.
Do not repay and re-borrow #
Clearing the account just before the deadline and taking the money straight back out is called bed and breakfasting, and there are two rules against it.
- The 30-day rule. Where at least £5,000.00 is re-borrowed within 30 days of a repayment, the repayment is ignored for s455 purposes. The charge applies to the lower of the amount repaid and the amount re-borrowed.
- The arrangements rule. Where the balance was at least £15,000.00 before a repayment, and at that point there were arrangements to re-borrow at least £5,000.00, the repayment is ignored even if the new borrowing falls outside 30 days.
There is an important exception. Repayments that themselves carry an Income Tax charge on the director, such as clearing the balance with a salary, bonus or dividend, are generally outside these rules. That is why clearing a loan with a dividend works and clearing it with a bank transfer you immediately reverse does not.
How to clear an overdrawn account #
- Repay it in cash. Cleanest, if the money is available.
- Declare a dividend. Needs distributable reserves, and you pay dividend tax on it. Work out that tax.
- Vote a bonus. Carries Income Tax and both National Insurance charges, so usually more expensive than a dividend.
- Offset a credit balance. Only where you genuinely hold one, for example unclaimed expenses.
- Write it off. The worst option. It is taxed on you broadly as a dividend, National Insurance may follow, and the company gets no Corporation Tax deduction.
Why it usually happens #
Very few directors set out to take a loan. It builds up quietly, when money is drawn through the year and never formally voted as salary or dividend. At the year end the accountant has nothing to post it against, so it lands in the loan account.
The fix is procedural rather than clever: decide what you are taking and record it properly as it happens. Salary goes through payroll, dividends need a board minute and a voucher. What salary to set and how to split the rest.
A directors loan to company, the other direction #
Everything above concerns money taken out. A directors loan to company money, lending your own funds in, is the opposite case and is treated very differently.
There is no s455 charge and no benefit in kind, because the company owes you rather than the reverse. You can take the capital back at any time with no tax. If the company pays you interest, that interest is taxable income for you and the company must deduct 20% Income Tax at source and report it on form CT61.
Common questions #
What is a director's loan account?
It is the record of money moving between a company and a director outside salary, dividends and expense reimbursement. If the director owes the company money the account is overdrawn, which is when tax charges arise.
What is the s455 tax rate for 2026/27?
35.75% for loans made on or after 6 April 2026. Loans advanced before that date stay at the old 33.75% rate, because the change was not applied retrospectively. Both rates can therefore appear in the same company.
How long do I have to repay a director's loan?
Nine months and one day after the end of the accounting period in which the loan was made. Repay within that window and no s455 charge arises at all.
Is s455 tax refundable?
Yes. It is a deposit rather than a permanent cost. When the loan is repaid, released or written off, the company can reclaim it, though the refund is not immediate.
Can I repay a director's loan and take it out again?
Not without consequence. If at least £5,000 is re-borrowed within 30 days of a repayment, the repayment is ignored for s455 purposes. A separate rule applies where the balance was at least £15,000 and there were arrangements to re-borrow at least £5,000, even beyond 30 days.