What is the S455 charge on an overdrawn director loan account in the UK?

Full answer

An overdrawn director's loan account (DLA) arises when a director withdraws more money from the company than they have put in or earned as salary and dividends. HMRC has specific rules to prevent companies from being used as a personal bank account. The S455 charge Under section 455 of the Corporation Tax Act 2010, if a participator's (director's or shareholder's) loan is not repaid within 9 months and 1 day of the company's accounting year-end, the company must pay a S455 charge equal to 33.75% of the outstanding balance. This rate was aligned with the dividend upper rate in April 2022. The charge is reported on the CT600A supplementary page of the corporation tax return. Refund when loan is repaid The S455 charge is a temporary tax. When the loan is repaid -- in full or in part -- the company can claim a refund of the S455 charge. The refund is claimed on the company's next CT600 return (9 months after the accounting period in which repayment is made). If repayment happens mid-year, the claim can be made earlier using form LP2. Benefit in kind -- cheap loan rules If the outstanding DLA balance exceeds GBP 10,000 at any point during the tax year, the director is treated as receiving a beneficial loan at the HMRC official rate (currently 2.25% for 2026/27). The difference between the official rate and any interest actually charged is a benefit in kind, reportable on form P11D, and subject to Class 1A NI by the employer. Interplay with salary and dividends Directors often clear an overdrawn DLA by voting a salary, bonus or dividend. This must be structured carefully -- a salary must be voted and paid (not just credited), and dividends require sufficient distributable reserves. Retrospective salary or dividend votes may not be accepted by HMRC. Anti-avoidance -- 30-day rule and arrangements HMRC has anti-avoidance provisions targeting directors who repay loans just before the 9-month deadline and then re-borrow (bed-and-breakfasting). If the same amount is re-borrowed within 30 days of repayment, or if repayment is made as part of a scheme to avoid S455, HMRC can look through the repayment and maintain the S455 charge. Recording the DLA Companies must maintain accurate DLA records in their bookkeeping. Auditors and HMRC both scrutinise DLA balances on company accounts.

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