Director's Loan Account Tax Guide 2026: Rules and Costs

Quick answer

A director's loan account tracks money you take from or lend to your own limited company outside salary and dividends. If you owe the company at the year end and do not repay within nine months and one day, the company pays a refundable section 455 charge of 33.75% on the balance. If the loan tops GBP 10,000 and is cheap or interest-free, a benefit-in-kind also arises.

What a director's loan account actually is

Every owner-managed limited company should keep a director's loan account (DLA). It is simply a running ledger of money flowing between you and the company that is not salary, not a dividend, not reimbursement of a genuine business expense, and not repayment of capital you originally introduced.

When you put money in -- paying a supplier from your personal card, or lending the company working capital -- the DLA moves in your favour and the company owes you. When you take money out for personal use, the DLA moves the other way. If your withdrawals exceed what you have put in, the account is overdrawn: you owe the company.

A credit balance (the company owing you) is generally harmless and can be repaid to you tax-free at any time, because it is your own money coming back. The tax complications all sit with the overdrawn position.

The two taxes that can apply

There are two distinct charges, and they can both apply to the same loan at the same time. Do not confuse them.

The section 455 charge

If your DLA is overdrawn at the company's accounting year end, the company has until nine months and one day after that year end to see the loan repaid. Miss that deadline and the company pays section 455 tax at 33.75% of the balance still outstanding. That percentage deliberately mirrors the higher rate of dividend tax, to stop directors taking dividends in the guise of untaxed loans.

The good news is that section 455 is a deposit, not a permanent cost. Once you repay the loan, or it is written off, HMRC refunds the tax. The catch is timing: the refund is only due nine months and one day after the end of the accounting period in which the repayment happened, so your money can be tied up for a long time. It is paid alongside Corporation Tax via the CT600A pages of the return -- see the

calculator to see how it sits beside the main 19% / 25% Corporation Tax bands.

The beneficial loan benefit-in-kind

Separately, if the loan balance exceeds GBP 10,000 at any point in the tax year and you pay no interest -- or interest below HMRC's official rate -- you receive a taxable perk. The benefit equals interest at the official rate minus any interest you actually paid the company.

You pay Income Tax on that benefit at your marginal rate (20%, 40% or 45%), and the company pays Class 1A National Insurance at 15%. The official rate of interest is set by HMRC and changes from time to time, so check the current figure on gov.uk before you calculate -- it is not one of the fixed band figures.

How to avoid the charges legitimately

You have several clean options, and which one wins depends on your numbers.

Keep the balance under GBP 10,000

The simplest route. If your peak overdrawn balance never reaches GBP 10,000, there is no benefit-in-kind at all. Section 455 can still apply to any overdrawn balance at the year end, so you still want to repay before the nine-month deadline, but you remove the P11D and Class 1A NI cost completely.

Charge interest at the official rate

If you genuinely need a larger loan, have the company charge you interest at or above HMRC's official rate on the whole balance. That eliminates the benefit-in-kind. The interest the company receives is taxable income for the company, but you have swapped an uncertain personal benefit charge for a clean, deductible-for-you-nowhere but predictable arrangement.

Repay before the deadline -- but watch bed and breakfasting

Repaying the overdrawn balance before nine months and one day after year end avoids section 455 entirely. But HMRC anticipated the obvious trick. Under the bed and breakfasting rules, if you repay GBP 5,000 or more and within 30 days draw a fresh loan of GBP 5,000 or more, the repayment is matched against the new advance and section 455 still bites. A wider rule catches arrangements of GBP 15,000 or more where there is an intention to redraw, even outside the 30-day window.

Clearing an overdrawn loan: salary versus dividend

Most directors clear an overdrawn DLA by voting a dividend or paying salary that is then credited against the loan rather than paid out in cash. The two routes have very different tax profiles.

Run both routes through the

calculator and weigh the result against the section 455 cost of doing nothing. Remember the section 455 is refundable, so the real comparison is the time-value cost of locking up 33.75% versus the permanent tax cost of distributing profit now.

Writing off the loan -- usually the worst option

If a director's loan is formally written off or released, the debt disappears but it is treated as your income. For a director who is also a shareholder, the write-off is normally taxed like a dividend, so the 10.75% / 35.75% / 39.35% rates apply. In most close company situations the company cannot deduct the write-off for Corporation Tax, and National Insurance can also be in point. You can end up taxed personally with no offsetting relief for the company -- the worst of both worlds. Treat a write-off as a last resort, not a planning tool.

A worked sequence

Suppose your company has a 31 March year end and your DLA is GBP 30,000 overdrawn at 31 March 2027.

• You have until 1 January 2028 (nine months and one day) to repay. If you do, no section 455 charge.
• Because the balance exceeded GBP 10,000 during the year, a benefit-in-kind already arose unless you paid interest at the official rate. That is a separate, non-refundable cost you cannot undo retrospectively.
• If you do nothing, the company pays section 455 of 33.75% on GBP 30,000 = GBP 10,125, refundable later once you repay.
• If you vote a dividend to clear it, you pay dividend tax at your band on the GBP 30,000 (after the GBP 500 allowance), but unlock the company from the section 455 deposit.

The lesson: the benefit-in-kind is the cost you cannot reverse, so the GBP 10,000 ceiling and the official-rate-interest option are your most powerful planning levers.

Record-keeping and reporting

The company reports overdrawn loans on the CT600A supplementary pages and pays any section 455 charge with its Corporation Tax. A benefit-in-kind on a loan over GBP 10,000 goes on a P11D, with Class 1A NI due, and you declare the benefit on your Self Assessment. Any dividend or salary used to clear the loan also belongs on your personal return.

Keep a contemporaneous DLA ledger -- date, amount, direction, and whether each entry is salary, dividend, expense or loan. A clean ledger turns a stressful year-end exercise into a five-minute confirmation, and it is your first line of defence if HMRC asks questions.

Where this fits in your wider tax picture

Director's loans rarely sit in isolation. The right salary-and-dividend split, the company's Corporation Tax position, and your personal Income Tax band all interact. Before you draw down or repay, model the whole picture: check your personal position with the

calculator and the company position with the calculator. None of these figures is a substitute for advice on a complex case, but they will tell you quickly whether a planned withdrawal is cheap or expensive.

If you are unsure of any figure not covered here -- including HMRC's current official rate of interest -- confirm it on gov.uk rather than guessing. This is your money and the company's, and the penalties for getting director's loan tax wrong are real.