Director’s loan accounts and s455 tax: the rules for UK practices

When s455 applies to a director’s loan account

Section 455 of the Corporation Tax Act 2010 charges a close company tax when it lends to a participator, or an associate of one. Most owner-managed companies are close, and most of their directors are shareholders, so an overdrawn director’s loan account is the usual way it arises.

A director’s loan account records the money that moves between a director and the company, other than salary, dividends and expense repayments. In the company’s books an overdrawn account is a debit balance: an asset, because the director owes the company. A credit balance means the company owes the director, and s455 only bites on the debit side.

The loan doesn’t need paperwork. Section 455(4) treats a debt the director incurs to the company as a loan, so personal bills paid by the company count the same as cash drawn.

The charge sits on the company, not the director. The company gets it back once the loan is repaid, released or written off. Three exceptions in s456 take some loans out entirely:

• Loans made in the ordinary course of a money-lending business.
• Trade credit on normal terms of no more than six months.
• Loans of up to £15,000 in total to a director or employee who works full time for the company and has no material interest in it.

If you also look after Australian clients, the closest equivalent there is Division 7A, which deems a dividend rather than charging the company. Our Division 7A guide covers it.

The s455 tax rate is 35.75% for loans made from 6 April 2026

The s455 rate isn’t set on its own. Section 455(2) ties it to the dividend upper rate in section 8(2) of the Income Tax Act 2007 for the tax year in which the loan is made. Finance Act 2026 raised that rate to 35.75% from 2026–27, so s455 moved with it.

The 9-month rule for director’s loans

The 9-month rule is the s455 deadline. s455 tax is due on the day after the end of the nine months that follow the accounting period in which the loan was made. That’s the same date most small companies pay their corporation tax, and late payment interest runs from it.

If the director repays before that date, relief under s458 is immediate and no s455 tax is payable. A loan still outstanding at the year end goes on the CT600A anyway, and the relief is claimed in the same return.

How to reclaim s455 tax

Once s455 has been paid, the company reclaims it when the loan is repaid, released or written off. The catch is timing. Section 458(5) holds the relief back until nine months and one day after the end of the accounting period in which the repayment is made, and HMRC won’t repay before that date.

• With 12-month accounting periods, a repayment soon after the s455 due date leaves the tax with HMRC for about a year. A repayment after the next year end leaves it there for about two.
• The claim must be made within four years of the end of the financial year in which the repayment happens.
• HMRC refunds the corporation tax but not any late payment interest the company paid.
• A dividend or bonus credited to the loan account counts as repayment if it’s real: lawfully declared, or taxed through payroll.

1. 01

   Confirm the relief date.

   Find the accounting period in which the loan was repaid, released or written off. Relief is due nine months and one day after it ends.

2. 02

   Gather the details L2P asks for.

   The company’s UTR and bank details, the dates of both accounting periods, the date of the loan, the date and amount repaid, released or written off, and the date relief is due.

3. 03

   Claim on the right form.

   Use the CT600A or L2P as the table above sets out, after the relief date and within the four-year limit.

HMRC’s separate online service, “Tell HMRC about loans that participators have repaid in full”, has run since 7 April 2026. It isn’t a reclaim route. HMRC may ask a company to use it to confirm that loans declared on the CT600A were repaid by the dates shown, and if the return itself needs changing, the company must amend it instead.

A director’s loan account example: Bull Antics Ltd

Bull Antics Ltd has a 31 March year end. On 1 April 2026 it owed its director, Ryan Bull, £2,000. Through 2026–27 Ryan drew £2,500 at each month end, and the company card paid a £4,000 family holiday in September. A £12,000 interim dividend was credited to his account on 31 December.

Ryan owes £20,000 at the year end, all of it lent after 6 April 2026, so the rate is 35.75%. A further £8,000 dividend is credited on 15 December 2027, inside the nine months. That leaves £12,000 unpaid on 1 January 2028, and s455 of £4,290.00 is due that day.

Ryan clears the £12,000 in cash on 30 June 2028. That falls in the accounting period ending 31 March 2029, so the company can’t have its £4,290 back until 1 January 2030. That’s more than two years after the end of the period the loan was made in, so the claim goes on form L2P, and it must be made by 31 March 2033.

Bed and breakfasting: the 30-day and arrangements rules

Repaying a loan just before the deadline and drawing it out again straight after doesn’t work. The rules were in s464C from 2013. Finance Act 2025 moved them to s464ZA, treated as in force from 30 October 2024, and many practice templates still cite the old section.

Neither rule applies when the repayment itself is taxed on the director, such as a dividend or a payrolled bonus credited to the loan account. That exclusion is lost if the money leaves the company and comes back, or if it comes from another company’s dividend.

Beneficial loans over £10,000: the benefit in kind

An overdrawn director’s loan account can also be a taxable cheap loan for the director. If the director’s cheap loans total more than £10,000 at any time in the tax year, the whole loan is taxed as a benefit in kind.

• The benefit is interest at the official rate, 3.75% from 6 April 2026, less any interest the director actually pays the company.
• The company reports it and pays Class 1A National Insurance at 15% for 2026–27.
• The director pays income tax on the benefit through Self Assessment.

As an illustration, £20,000 owed for a whole tax year interest-free is a £750 benefit and £112.50 of Class 1A. In the example, Ryan’s balance passed £10,000 at the end of August 2026, so 2026–27 needs a benefit calculation.

Writing off a director’s loan: the tax on both sides

A company can release or write off a director’s loan instead of having it repaid. Releasing the loan ends the s455 problem for the company but creates a tax charge for the director.

• The company gets s458 relief for the amount released (CTM61655). The timing matches a repayment: immediate within the nine months, otherwise nine months and one day after the end of the period of the release.
• The company gets no corporation tax deduction for the amount written off (CTA 2009 s321A).
• The director is taxed on the amount released under ITTOIA 2005 s415. It counts as dividend income, so for 2026–27 it’s charged at 10.75%, 35.75% or 39.35% depending on the director’s band.
• It isn’t taxed again as employment income, but where the director is an employee Class 1 National Insurance may be due. GOV.UK tells companies to deduct it through payroll.
• The director reports the amount on their Self Assessment return.

GOV.UK applies the same treatment when a loan is written off as the company goes into liquidation. We’d suggest recording any release in a board minute alongside the journal.

Reporting the loan on the CT600A

A close company completes the CT600A supplementary pages when it made a loan in the period that attracts s455 and wasn’t repaid within the period. Part 1 lists the loans made in the period. Parts 2 and 3 claim s458 relief for repayments.

The s455 amount is part of the company’s corporation tax self assessment, so HMRC queries it by opening an enquiry into the return or the relief claim. Late filing penalties apply as for any return.

HMRC consulted from March to June 2026 on making close companies report payments to participators in more detail. Nothing had been legislated at 1 October 2026.

Keeping the director’s loan account right in Xero through the year

Most s455 surprises start as coding problems. These steps are practice, not law, but they’re what keeps a year-end review short.

1. 01

   Give each director their own account.

   One balance sheet account per director, named for them. A shared “directors’ current account” hides who owes what.

2. 02

   Code personal spending when it happens.

   Bank rules for known personal payments save time, but review them. A rule that sends every card payment to the loan account will be wrong somewhere.

3. 03

   Post dividends and salary credits with their paperwork.

   Journal a dividend to the loan account only once the board minute and voucher exist. Don’t backdate it: HMRC treats a book entry as a repayment from the date it’s made (CTM61600).

4. 04

   Check the balance monthly.

   Run the account transactions report for each director’s account. Flag the month it first goes overdrawn and the month it passes £10,000.

5. 05

   Plan the repayment before the year end.

   Agree with the director how the balance will be cleared within the nine months: a dividend, a bonus through payroll, or cash.

6. 06

   Test repayments against the 30-day rule.

   Before recording a large repayment, check what the director plans to draw in the following month.

Common mistakes reviewers find

• Using 33.75% for loans made on or after 6 April 2026, or one rate across a period that straddles that date.
• Treating a repayment after the due date as an immediate refund, when relief waits for the next period’s due date.
• Crediting a dividend to the loan account with no minute, or when the company had no distributable reserves.
• Forgetting the benefit in kind because the year-end balance was under £10,000, when the balance passed it during the year.
• Citing s464C in a file note or letter. The rules now sit in s464ZA.

How AccountKit helps with director’s loan work

AccountKit doesn’t calculate s455. Our Division 7A tool is built for the Australian rules. What AccountKit does is keep the work around each loan in one place, linked to the client group.

You can set the nine-month date as a recurring task in AccountKit’s workflow, owned by the manager on that client group, and log the call where the director agreed how they’ll repay in the correspondence register. The loan account itself stays in the client’s Xero file, and AccountKit works alongside it.

The s455 numbers on one page

This guide is general information, not advice for a particular client. Check the HMRC guidance current at the time you rely on it.