Director's Loan Account Explained: S455 Tax, Repayment Rules and Exit Routes

A director's loan account is the running record of money moving between you and your limited company in ways that are not salary, dividends or expense reimbursement. It runs in both directions. If you have put more in than you have taken out, the company owes you money and the balance is a tax-free asset. If you have drawn more than you have put in, you owe the company money, and three separate charges start circling: S455 tax on the company, a benefit in kind on you, and, if the loan is ever written off, income tax at dividend rates plus a possible National Insurance bill.

The rules changed in one important way from 6 April 2026. The S455 rate tracks the dividend upper rate, and FA 2026 raised that rate, so the loan's date now decides its cost. This page sets out both directions of the account, the full consequences ladder for an overdrawn balance with worked figures you can recompute, and a comparison of every exit route.

What Is a Director's Loan Account?

Every limited company with a director-shareholder effectively has one, whether or not the bookkeeping labels it. It is a balance-sheet account, not a bank account: a ledger that captures money you lend the company (start-up costs paid personally, company bills on your own card, salary or dividends declared but left in the business) and money the company lends you (cash drawn without a matching dividend or payroll entry, personal costs on the company card, a dividend declared without sufficient distributable profit to cover it).

At any moment the account is either in credit (the company owes you) or overdrawn (you owe the company). The two positions have completely different tax treatment, so we take them in turn, starting with the one that generates the tax bills.

The Overdrawn DLA: The Consequences Ladder

An owner-managed company is almost always a close company, and a loan from a close company to a participator (a director-shareholder) sits inside a purpose-built anti-avoidance regime. Three rungs, from the routine to the expensive.

Rung 1: S455 Tax and the 9 Month and 1 Day Window

CTA 2010 s.455 charges the company a percentage of any loan to a participator still outstanding 9 months and 1 day after the end of the accounting period in which the loan was made. The rate equals the dividend upper rate for the tax year the loan was made, which means it is now date-banded:

• Loans made in 2025/26 (up to 5 April 2026): 33.75%
• Loans made on or after 6 April 2026: 35.75% (the FA 2026 dividend-rate rise flows straight through)

The band follows the loan, not the assessment. A loan you took in February 2026 stays at 33.75% however long it runs; a fresh drawing in May 2026 is at 35.75% even if it sits in the same account.

Worked example. You run a Leeds design consultancy with a 31 March year end. On 1 August 2025 you drew £40,000 for a house purchase without processing it as salary or dividend. Your accounting period ends 31 March 2026, so the repayment deadline is 1 January 2027, which is also the day the corporation tax is due. If the £40,000 is still outstanding on that date, the company pays S455 of £40,000 × 33.75% = £13,500. Had the same loan been drawn on 1 August 2026 instead (year end 31 March 2027, deadline 1 January 2028), the charge would be £40,000 × 35.75% = £14,300, an extra £800 purely from the date band.

Two things S455 is not. It is not a penalty, and it is not permanent. When the loan is repaid, released or written off, the company reclaims it under CTA 2010 s.458. But the relief is deferred: HMRC repays 9 months and 1 day after the end of the accounting period in which the repayment happened, not when you repay, and the claim must be made within 4 years of the end of that period. Repay the Leeds loan in June 2027 and the company sees its £13,500 again on 1 January 2029. The true cost of S455 is the company losing use of a third of the loan for years.

Rung 2: The Benefit in Kind on Loans Over £10,000

Separately from S455, an interest-free or cheap loan is a taxable employment benefit under ITEPA 2003 ss.173 to 191 if the balance exceeds £10,000 at any point in the tax year. The taxable amount is the interest you would have paid at HMRC's official rate of interest, minus any interest you actually paid. The official rate is 3.75% for 2025/26 and continues at 3.75% from 6 April 2026 (HMRC now reviews it in-year, so check before relying on it for a future year).

Worked example. An Ipswich contractor has a £24,000 interest-free loan outstanding for the whole of 2026/27. The cash equivalent under the averaging method is £24,000 × 3.75% = £900. As a higher-rate taxpayer she pays £900 × 40% = £360. The company reports the benefit on a P11D and pays Class 1A NIC of £900 × 15% = £135 (the Class 1A rate follows the 15% employer rate that has applied since 6 April 2025). Total leakage: £495 a year, on top of any S455 exposure.

Two clean escapes: keep the balance at £10,000 or below throughout the year, or formally charge yourself interest at the official rate and actually pay it, which extinguishes the benefit entirely.

Rung 3: Bed and Breakfasting, the 30-Day Rule and the Intentions Rule

The obvious dodge, repay just before the 9 month deadline and redraw straight after, is blocked twice over.

The 30-day rule (CTA 2010 s.464ZA(1), renumbered from s.464C with effect from 30 October 2024, with the substance unchanged): where repayments of £5,000 or more are made and, within 30 days, new loans of £5,000 or more are drawn, the repayment is matched against the new drawing and treated as never made. The S455 clock keeps running on the original loan.

The arrangements rule (s.464ZA(3)): where the outstanding balance is £15,000 or more and, at the time of repayment, there are arrangements for replacement borrowing of £5,000 or more, the repayment is denied relief however long you wait. Thirty-one days of patience does not defeat this one; it turns on the arrangements, not timing.

The safe harbour in both cases is repayment that is itself taxed: a dividend or bonus credited against the loan is real income that has borne tax, so the matching rules do not apply to it. Cash repayments from savings are also fine, provided you do not draw the money straight back out.

The Credit DLA: When the Company Owes You

The mirror position is a balance in your favour, usually built from incorporation costs you funded personally, company expenses on your own card, or declared dividends left in the business. This is the benign direction. The company can repay you at any time, in any amount, with no tax on either side, because it is returning your own money. For many directors a healthy credit balance is the most flexible reserve they have: drawable in a lean month without touching payroll or profits.

Charging the Company Interest and the CT61

You can go further and charge the company interest on what it owes you, at a commercial rate. Done properly it is efficient in both directions: the interest is a deductible expense for the company, and in your hands it is savings income that can shelter under the personal savings allowance and, for low earners, the starting rate for savings.

The mechanics matter. When a company pays interest to an individual it must deduct 20% income tax at source and account for it to HMRC on form CT61, filed quarterly. Lend the company £50,000 at 5% and the gross interest is £2,500 a year; the company pays you £2,000 and remits £500 to HMRC through the CT61. You declare the gross £2,500 on your return and credit the £500 already deducted. Skipping the CT61 does not remove the obligation, it just creates late-filing exposure, so set the process up before the first payment.

One caution: in an insolvency a credit balance makes you an unsecured creditor, at the back of the queue. Money left in a struggling company is at risk like any other creditor's.

Writing Off the Loan: The Expensive Exit

If the company releases or writes off an overdrawn loan, the amount written off is taxed on you as if it were a dividend: 10.75%, 35.75% or 39.35% for 2026/27 depending on your band. Write off £30,000 as a higher-rate taxpayer and the personal bill is £30,000 × 35.75% = £10,725.

The trap that surprises people is National Insurance. HMRC's long-standing position is that where the loan is written off by reason of the employment, the release is earnings for NIC even though it is dividend income for income tax, so Class 1 NIC can be due through payroll on top of the dividend-rate charge. The company also gets no corporation tax deduction for the write-off. The one consolation: a release counts as the loan clearing, so the company recovers its S455 under s.458 on the usual deferred timetable. The full mechanics are in our guide to the tax implications of a director's loan written off.

How the DLA Fits Your Salary and Dividend Strategy

An overdrawn loan account is usually a symptom: drawings running ahead of the salary and dividends actually declared. The structural fix is a payment plan that covers what you actually spend. The standard owner-manager pattern, a small salary with the balance in dividends, is worked through in our guide to the most tax-efficient salary and dividend split for 2026/27, with the underlying rates in dividend tax rates 2026/27 and the payroll side in National Insurance for directors.

Three interactions worth knowing:

• Leaving dividends in the loan account works. A properly declared dividend credited to your DLA rather than paid out is real income; it clears or builds the balance and is safe from the bed-and-breakfasting rules. The declaration must be valid, with distributable profits and board minutes, at the date it is made.
• A dividend without profits becomes a loan. If you pay a dividend the company's distributable reserves cannot cover, the unlawful excess is repayable and sits in the DLA as an overdrawn balance, with the whole S455 apparatus attached.
• Timing is not retrospective. A dividend declared after year end reduces next year's balance, not the one just closed. To clear this year's overdrawn DLA before the S455 date, the dividend or bonus must be credited before 9 months and 1 day have run.

Exit Routes From an Overdrawn DLA Compared

Exit route	Tax cost	Watch for
Repay in cash before 9 months and 1 day	None	The 30-day and intentions rules if you redraw; still disclose on the CT600
Declare a dividend against the balance	Dividend tax: 10.75% / 35.75% / 39.35% (2026/27)	Needs distributable profits and proper paperwork; safe from bed-and-breakfasting because it is taxed income
Vote a bonus against the balance	PAYE at your marginal rate plus employee NIC, employer NIC at 15%; corporation-tax deductible for the company	Usually dearer than a dividend, but works when reserves are thin
Write the loan off	Dividend rates on you, likely Class 1 NIC on top, no CT deduction for the company	The most expensive route; S455 does come back under s.458
Leave it outstanding and pay S455	33.75% or 35.75% by loan date, repayable later	Cash-flow cost only, but adds the £10,000 benefit in kind each year it runs

For most directors the ranking is: cash repayment if you have it, a dividend if the company has profits, a bonus if it does not, S455 as a deliberate short-term bridge, and a write-off only when nothing else is realistic. If you are approaching a year end with an overdrawn balance, our walkthrough on reconciling your director's loan account before year end covers the clean-up sequence step by step.

Reporting: What Goes Where

On the company side, loans to participators are disclosed on the CT600A supplementary pages whether or not S455 is ultimately payable; a loan repaid inside the 9 month window is still disclosed. On your side, a benefit in kind on a loan over £10,000 flows from the P11D to the employment pages of your Self Assessment return. Interest the company pays you on a credit balance goes through the quarterly CT61 at the company and the savings income boxes on your return.

Insolvency: The Balance Survives

An overdrawn DLA does not disappear if the company fails. It is an asset of the company, and a liquidator will pursue you personally for it, often as the largest recoverable asset on the books. A credit balance flips you to unsecured creditor, typically recovering little. Either way, the loan account is one of the first documents an insolvency practitioner reads, which is a good argument for keeping it reconciled while times are good.

Keeping the Account Clean

1. Process regular drawings through payroll or dividend vouchers at the time you take them, not at year end.
2. Review the balance quarterly; an overdrawn position spotted in month three is fixable, one discovered at the year-end meeting often is not.
3. Keep the peak balance at £10,000 or below where you can, or charge yourself the official rate of 3.75% where you cannot.
4. Diarise the 9 month and 1 day date the moment the year closes, and decide the exit route early.
5. Document any deliberate loan: amount, date, planned repayment. The date now sets the S455 band, so it matters more than it used to.

If your loan account is overdrawn and the deadline is approaching, or you want a payment structure that stops the balance building in the first place, our contact page connects you with an accountant who deals with this weekly.