Short answer: a director's loan account records money moving between you and your company. If you owe the company money at the year end and it is still unpaid 9 months and 1 day later, the company pays an extra tax charge, called section 455 tax. For loans made on or after 6 April 2026 the rate is 35.75%. The tax is reclaimable once the loan is repaid, and it is avoidable if you repay in time.
What a director's loan account is
A limited company's money belongs to the company, not to you. A director's loan account is the running record of money that passes between you and the company outside of salary and dividends. It records:
- money you put into the company, such as paying a company cost personally;
- money you take out that is not salary, a dividend or an expense repayment;
- repayments in either direction.
Every limited company director has one in their accounting records, even if it is rarely used.
Overdrawn and in credit
- In credit: the company owes you. You can take that money back at any time, tax free, because it is a repayment of your own money.
- Overdrawn: you owe the company. This is where tax can arise.
The section 455 charge
If your loan account is overdrawn at the company's year end and is not repaid within 9 months and 1 day of that date, the company pays section 455 tax on the outstanding balance.
- The company pays it, not you, with its Corporation Tax.
- The rate is 35.75% for loans made on or after 6 April 2026, and 33.75% for loans made before then. It follows the dividend upper rate in force when the loan was made.
- The date of each loan sets its rate, so one account can carry more than one rate.
- The company can reclaim the tax once the loan is repaid, but it must pay it first.
Worked example
| Step | Amount |
|---|---|
| Loan taken in July 2026 and still owed 9 months and 1 day after year end | £20,000 |
| Section 455 tax at 35.75% | £7,150 |
| The same loan made before 6 April 2026, at 33.75% | £6,750 |
| Tax reclaimed after the loan is repaid | £7,150, less any cash flow cost in the meantime |
The personal tax side
Section 455 is a company charge, but there can be a charge on you as well. If you owe the company more than £10,000 at any point in the tax year, and you pay no interest or pay less than HMRC's official rate (3.75% from 6 April 2026), the difference is a benefit in kind.
| £20,000 loan, no interest paid | Amount |
|---|---|
| Taxable benefit (£20,000 × 3.75%) | £750 |
| Income Tax for you at 20% | £150 |
| Income Tax for you at 40% | £300 |
| Class 1A National Insurance for the company at 15% | £112.50 |
It is usually reported on a P11D, or through payroll. Charging interest at the official rate avoids the benefit in kind, and the interest is income for the company.
How to repay a loan properly
- Pay the money back from your own bank account into the company account.
- Declare a dividend and offset it against the loan, if there are enough profits to pay it. Dividends can only be paid from available profits and are taxable on you.
- Pay salary or a bonus and offset it. This is taxed through payroll.
Beware of "bed and breakfasting". Repaying a loan and re-borrowing straight afterwards to avoid the charge is caught by anti-avoidance rules. In particular, repaying and re-borrowing within 30 days can be treated as if the loan was never repaid. Talk to your accountant before moving large sums.
How to avoid the charge
- Clear the balance before the deadline of 9 months and 1 day after the year end.
- Review your loan account before the year end, not after.
- Plan salary and dividends so that you can clear the account, rather than borrowing.
- Do not use the business account for personal spending. Take regular salary or dividends instead.
Reporting and reclaiming
Overdrawn balances are reported on the CT600A supplement to the Corporation Tax return. If the company has paid section 455 tax and the loan is later repaid, released or written off, it can claim the tax back, normally using the repayment claim on the return or form L2P. The refund is due 9 months and 1 day after the end of the accounting period in which the loan was repaid. A written-off loan can have its own tax consequences for you, so take advice first.
Common mistakes
- Paying personal bills from the company account and not recording them as a loan.
- Clients paying into a personal account. See can I ask clients to pay into my personal bank account?
- Taking dividends without enough profit, which turns them into loans.
- Missing the 9 months and 1 day date by a few days.
- Forgetting that loans made after 6 April 2026 have a higher rate.
Frequently asked questions
Can my company lend me money?
Yes, but it creates a loan account balance that can bring the charges above. Check the amount and timing first.
Can I lend money to my company?
Yes. The company owes you, and you can take it back tax free. You can also charge interest, which is taxable income for you.
Is a director's loan the same as a dividend?
No. A dividend is a distribution of profit and is taxed on you. A loan has to be repaid, but can bring a section 455 charge if left too long. Use our dividend tax calculator to compare.
Is it better to pay myself differently?
Often. Salary and dividends are the usual routes. See our guide on what a company can pay for tax free.
Need help with your director's loan account?
We prepare company accounts and Corporation Tax returns for a fixed monthly fee and keep your loan account in order. See our fixed price accountancy packages or get in touch.
