Do you know what your director’s loan account balance is today? If you have taken money out of your limited company that was not salary, a dividend or an expense repayment, the answer matters more this year than it did last. An overdrawn director’s loan now costs more to leave unresolved, and the deadline for clearing it may be closer than you think.

What has changed for an overdrawn director’s loan?

When a close company lends money to a director who is also a shareholder, and the loan is still outstanding nine months and one day after the company’s year end, the company pays section 455 tax (S455). The company reports the loan on form CT600A with its Company Tax Return. The S455 rate follows the dividend upper rate. For loans made on or after 6 April 2026 it is 35.75%, up from 33.75% for loans made since 6 April 2022, according to HMRC’s Company Taxation Manual.

The rate depends on the date each loan was made, not on the size of your balance. Loans made before 6 April 2026 stay at 33.75%, so some older guidance online is still right for older borrowing. As an illustration, if £30,000 is borrowed after 6 April 2026 and left outstanding, the company’s S455 bill is £10,725. The same loan under the old rate would have cost £10,125, so the rise adds £600.

The tax is refundable, but not quickly

The company can reclaim S455 tax once the loan is repaid, released or written off. However, the claim can only be made once relief is due, which is nine months and one day after the end of the accounting period in which the loan was cleared. Interest charged on late S455 tax cannot be reclaimed. This means the cash can sit with HMRC for a long time.

The second tax charge on loans above £10,000

S455 tax falls on the company. A separate charge can fall on you as a director. If your loans from the company total more than £10,000 at any point in the tax year, the small loans exemption no longer applies and the loan becomes a taxable benefit in kind. The benefit is the interest you would have paid at HMRC’s official rate, which is 3.75% (as of October 2026), minus any interest you actually pay to the company.

For example, a £30,000 interest-free loan held for a full year gives a benefit of £1,125. A higher rate taxpayer would pay roughly £450 in income tax on that, and the company would pay Class 1A National Insurance at 15%, around £169. Charging interest at or above the official rate removes the benefit, although the company must then treat that interest as income.

How to clear an overdrawn director’s loan before the deadline

If you clear the loan before the S455 tax falls due, nothing is payable. That date is nine months and one day after your year end, so for a company with a 31 March year end it is 1 January. You have several routes, and the best one depends on your profits and your own tax position.

Repay in cash from your personal funds. This is the simplest option and leaves no further tax to pay.
Declare a dividend and credit it to your loan account, provided the company has enough distributable profit. Dividends above your £500 allowance are taxed at 10.75% for basic rate and 35.75% for higher rate taxpayers in 2026/27.
Vote a bonus or salary through payroll. This clears the balance but brings income tax and National Insurance.
Think twice about a write-off. The amount written off is added to your income and taxed, and National Insurance can apply too.

Be careful with quick fixes. Repaying the loan and borrowing again straight away is known as bed and breakfasting, and HMRC can match your repayment to the new loan. This applies if you repay £5,000 or more and borrow £5,000 or more within 30 days, or if £15,000 or more is outstanding and you have arranged to borrow £5,000 or more again.

Our guide to how a director’s loan account works covers the basics, and our 2026/27 tax rates and allowances guide has the current dividend rates. If you are deciding how to take money out of your company in the first place, read how to pay yourself as a business owner. 

Get your balance checked now 

Not sure what your balance is, or when your deadline falls? Our friendly team can check your position and work out the most tax-efficient way to clear it. Call us on 01322 250001 or contact us online for a free, no-obligation chat. No question is too silly when it comes to taking money out of your company. 

About the author 

Michelle Adams is a qualified accountant and director at Adams Accountancy, a friendly accountancy practice based in Dartford, Kent. With over 15 years of experience helping limited companies across Kent and beyond, Michelle specialises in explaining how directors can take money out of their companies tax-efficiently and without nasty surprises. 

Frequently asked questions about director’s loans 

What is the S455 rate on a director’s loan in 2026/27? 

The S455 rate is 35.75% for loans made on or after 6 April 2026 and 33.75% for loans made from 6 April 2022 to 5 April 2026. The rate follows the dividend upper rate for the tax year in which each loan is made. 

When must a director’s loan be repaid to avoid S455 tax? 

Repay, release or write off the loan before the tax falls due, which is nine months and one day after the end of the accounting period in which it was made. For a company with a 31 March year end, that date is 1 January. 

Can the company get S455 tax back? 

Yes, once the loan is repaid, released or written off, the company can reclaim the tax but not any interest charged on it. The refund is not paid before nine months and one day after the end of the accounting period in which the loan was cleared, and the claim must be made within four years. 

Do I pay personal tax on a director’s loan? 

Not on the loan itself, but loans above £10,000 at any point in the tax year create a taxable benefit worked out at the official rate of interest (3.75% in 2026/27) less any interest you pay. If a loan is written off rather than repaid, the amount is added to your income and taxed. 

Sources 

HMRC Company Taxation Manual, CTM61505 (rate of section 455 tax): https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm61505 

HMRC Company Taxation Manual, CTM61610 (date relief is due): https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm61610 

HMRC Company Taxation Manual, CTM61630 (bed and breakfasting: 30 day rule): https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm61630 

HMRC Company Taxation Manual, CTM61635 (bed and breakfasting: arrangements rule): https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm61635 

HMRC Company Taxation Manual, CTM61655 (release or writing off of a loan): https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm61655 

HMRC Employment Income Manual, EIM26140 (small loans exemption): https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim26140 

GOV.UK, Beneficial loan arrangements: HMRC official rates: https://www.gov.uk/government/publications/rates-and-allowances-beneficial-loan-arrangements-hmrc-official-rates/beneficial-loan-arrangements-hmrc-official-rates 

GOV.UK, Rates and thresholds for employers 2026 to 2027: https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027 

GOV.UK, Tax on dividends: https://www.gov.uk/tax-on-dividends 

GOV.UK, Director’s loans: if you owe your company money: https://www.gov.uk/directors-loans/you-owe-your-company-money