Director's Loan Account S455 Charge: A Full Worked Example (2026/27)
If you owe your company money at year end and don't repay it within 9 months, your company pays a 33.75% S455 tax charge. Here's a complete worked example of how the numbers actually work.
What triggers the S455 charge
A director's loan account becomes overdrawn whenever a director takes money out of the company that isn't salary, a dividend, or a reimbursed business expense — commonly an informal drawdown against future dividends, or company funds used for a personal purchase. If that overdrawn balance is still outstanding 9 months and 1 day after the end of the accounting period in which it arose, the company must pay a tax charge under Section 455 of the Corporation Tax Act 2010 — hence "S455."
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The S455 rate is set to match the dividend upper rate (35.75% for 2026/27) minus a small adjustment — it is specifically calculated at 33.75% of the outstanding loan balance. This rate structure exists because the S455 charge is designed to broadly neutralise the tax advantage a director might otherwise get by taking an informal, undeclared loan instead of a properly taxed dividend or salary.
Full worked example
Suppose a company's accounting period ends 31 March 2026. During the year, the sole director draws £24,000 from the company via the director's loan account, with no repayments made before the year end.
| Step | Detail | Amount |
|---|---|---|
| Loan balance at year end (31 March 2026) | £24,000 | |
| S455 payment deadline | 9 months + 1 day after year end | 1 January 2027 |
| If still unpaid on 1 January 2027 | S455 charge at 33.75% | £8,100 |
The company must pay this £8,100 to HMRC alongside its normal corporation tax payment, even though the £24,000 loan itself is not a deductible expense for corporation tax purposes.
If the loan is later repaid
Suppose the director repays the full £24,000 on 1 June 2027, within the company's next accounting period (year ending 31 March 2028).
| Event | Date |
|---|---|
| Loan repaid in full | 1 June 2027 |
| Accounting period of repayment ends | 31 March 2028 |
| Earliest date company can reclaim the £8,100 S455 tax | 1 January 2029 (9 months after 31 March 2028) |
The benefit-in-kind charge on top
If the loan balance was £10,000 or more at any point during the tax year (or bears interest below HMRC's official rate), a separate personal tax charge applies to the director, calculated as a benefit in kind:
| Element | Treatment |
|---|---|
| Loan £10,000+ (or below official rate) | Deemed benefit-in-kind on the director |
| Reporting | P11D (or payrolled benefits) |
| Employer cost | Class 1A National Insurance on the benefit value |
| Director's cost | Income tax on the benefit value, via Self Assessment or tax code adjustment |
Using our £24,000 example loan and HMRC's official rate (which changes periodically — check the current rate), the benefit-in-kind value is broadly the interest that would have been charged at the official rate, less any interest actually paid by the director. This is a genuinely separate tax charge from the company's S455 liability — both can apply to the same loan simultaneously.
The "bed and breakfasting" anti-avoidance rule
A director might be tempted to simply repay the loan just before the 9-month deadline (avoiding S455), then immediately re-draw a similar amount afterwards. HMRC's anti-avoidance rules specifically target this:
| Rule | Effect |
|---|---|
| New loan of £5,000+ taken within 30 days of a repayment | Repayment is disregarded for S455 purposes |
| Repayment made with an intention to withdraw £15,000+ again later, and this was arranged before the repayment | Repayment can also be disregarded, even outside the 30-day window |
These rules mean a genuine, sustained repayment is required to avoid the charge — a repay-then-reborrow pattern within a short window will not work.
How to avoid the charge altogether
- Repay the loan in full within 9 months of the accounting period end — the simplest and cleanest solution.
- Declare a dividend (if the company has sufficient distributable reserves) to clear the loan, provided this is properly minuted and doesn't breach dividend rules.
- Vote additional salary or bonus to clear the balance, accepting the income tax and NI cost of doing so, if a dividend isn't appropriate.
- Keep the loan account below £10,000 throughout the year if possible, to also avoid the benefit-in-kind complication.
Use our corporation tax calculator to see the combined cost of an S455 charge alongside your company's normal tax bill, and our dividend tax calculator to compare the cost of clearing a director's loan via a dividend instead.
Frequently asked questions
What is the S455 tax charge rate for 2026/27?
The S455 charge is 33.75% of the outstanding director's loan balance, matching the dividend upper/additional rate structure, and is payable by the company, not the director personally.
When does the S455 charge apply?
It applies if a director's loan account is overdrawn (the director owes the company money) at the company's year end, and the loan is not repaid within 9 months and 1 day after the end of that accounting period.
Can the company get the S455 tax back if the loan is later repaid?
Yes. Once the loan is fully repaid, the company can reclaim the S455 tax from HMRC, but not immediately — the repayment claim can only be made from 9 months after the end of the accounting period in which the loan was repaid, meaning a significant cash flow gap between paying the charge and reclaiming it.
Does the director also pay personal tax on the loan?
Potentially, in addition to the company's S455 charge. If the loan is £10,000 or more (or interest-free/below the official rate), it's treated as a taxable benefit in kind on the director, reported on a P11D, with Class 1A National Insurance also due from the employer.
What happens if I take a new loan shortly after repaying the old one?
HMRC's 'bed and breakfasting' anti-avoidance rules specifically target repaying a loan just before the deadline and then re-borrowing shortly afterwards — if a new loan of £5,000 or more is taken within 30 days of a repayment, the repayment can be disregarded for S455 purposes, reinstating the charge.
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