What is the tax treatment of a director loan account in 2026/27?

Full answer

A Director's Loan Account (DLA) records money borrowed from or lent to the company by a director or shareholder. Tax treatment depends on whether the account is overdrawn (director owes the company) or in credit (company owes the director). Overdrawn DLA -- S455 charge If the DLA is overdrawn at the end of the company accounting period, the company must pay an additional corporation tax charge under Corporation Tax Act 2010 s455: -- Rate: 33.75% of the outstanding overdrawn balance (mirroring the higher dividend income tax rate) -- This is paid nine months and one day after the accounting period end (alongside the corporation tax payment) -- The S455 charge is repayable (as a corporation tax refund) nine months after the end of the accounting period in which the loan is repaid -- creating a cash flow delay even if the director repays quickly Benefit in kind -- cheap loans Where a director has an overdrawn DLA at any point during the tax year and the loan exceeds GBP 10,000, HMRC treats the difference between the official rate (2.25% for 2026/27) and the actual rate charged as a taxable benefit in kind: -- Reported on P11D (or payrolled) -- Subject to income tax on the director (through self-assessment) and Class 1A employer NI (13.8%) -- If the company charges at least 2.25% interest on the outstanding balance, no benefit in kind arises Example Director has a GBP 50,000 overdrawn DLA for the full year 2026/27. Company does not charge interest. Benefit in kind = GBP 50,000 x 2.25% = GBP 1,125. If director is a higher-rate taxpayer: income tax = GBP 450. Employer NI = GBP 155.25. Writing off the loan If the company writes off (formally waives) the director's loan, the written-off amount is treated as a deemed dividend (a distribution). It is subject to income tax on the director at dividend rates (8.75% / 33.75% / 39.35%) and does not attract NI (as it is a distribution, not employment income). Credit DLA -- loan from director If the director has lent money to the company (credit DLA), the company can repay these funds without tax consequences. If the company pays interest to the director on the credit balance, the interest is deductible for CT purposes and taxable in the director's hands (usually with 20% basic rate tax deducted at source -- the director may then reclaim if a non-taxpayer).

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