Director Loan Account and S455 Corporation Tax Charge UK 2026

What Is a Director Loan Account?

A Director Loan Account (DLA) is a running ledger in a company's books that records all money flows between a director-shareholder and the company that are not salary, dividends, or reimbursed expenses. When you take money from the company beyond your voted salary and dividends, the balance becomes overdrawn -- meaning the company has a debtor on its balance sheet and you personally owe money to the company.

DLAs arise routinely in owner-managed businesses. Common examples include:

• Drawing cash in anticipation of a dividend not yet voted
• Personal expenses paid by the company credit card
• Using company funds to pay a personal tax bill

The DLA itself is not illegal or inherently problematic. Problems arise when the balance is overdrawn at the wrong time, or when the amounts are large enough to trigger benefit-in-kind or Section 455 charges. Keeping accurate records and reconciling the DLA at each year-end is essential. Use the CalcHub Corporation Tax Calculator to factor S455 into your company tax planning.

The Section 455 Charge: Rate and Timing

Section 455 of the Corporation Tax Act 2010 applies when a close company (broadly, a company controlled by five or fewer participators) has an outstanding loan to a participator at the end of an accounting period and that loan remains unpaid nine months and one day after the accounting period end.

In 2026/27 the S455 charge rate is 33.75% -- aligned with the higher dividend rate. This rate has been set at the higher dividend tax rate since April 2016.

Example: your company year-end is 31 March 2026. Your DLA is overdrawn by GBP 40,000 at that date. The S455 payment deadline is 1 January 2027 (9 months and 1 day after 31 March 2026). If you have not repaid or relieved the loan by then, the company owes GBP 13,500 in S455 tax (33.75% x GBP 40,000) in addition to its normal corporation tax bill.

The S455 charge is not deductible for corporation tax purposes. It is a pure cash-flow cost.

Repaying the Loan and Reclaiming S455

The good news is that S455 is a temporary charge. Once the director repays the loan (or the company credits a dividend to clear it), the company can reclaim the S455 paid. However HMRC does not refund it immediately.

The refund becomes due nine months and one day after the end of the accounting period in which repayment occurred. So if the loan is repaid in the year ending 31 March 2027, the S455 repayment is due back from HMRC on 1 January 2028.

This means that if a director borrows GBP 100,000 and the company pays S455 of GBP 33,750, then the director repays it two years later, the company has effectively given HMRC an interest-free loan of GBP 33,750 for up to three years. On large sums this is a material cost.

Anti-avoidance rules exist to prevent bed-and-breakfasting -- repaying the loan just before the nine-month deadline and then re-borrowing shortly afterwards. If a director repays GBP 5,000 or more within 30 days before the year-end and re-borrows a similar amount within 30 days after the year-end, the repayment is ignored for S455 purposes. HMRC also has broader provisions for arrangements made with a main purpose of avoiding S455.

Benefit in Kind on Director Loans Over GBP 10,000

If the overdrawn DLA exceeds GBP 10,000 at any point during the tax year (not just at year-end), a beneficial loan benefit in kind arises. The value of the BIK is calculated using HMRC's official rate -- 2.25% for 2026/27 -- on the average balance during the year (or on the actual daily balance using the alternative precise method).

For example, if the loan averaged GBP 30,000 across the year and you paid no interest, the BIK is GBP 30,000 x 2.25% = GBP 675. This GBP 675 must be reported on form P11D by 6 July after the tax year. You pay income tax on it at your marginal rate (20%, 40%, or 45%). The company pays Class 1A NIC at 13.8% on the GBP 675 -- a cost of GBP 93.15.

You can eliminate the BIK by paying the company interest at or above the official rate. Any interest you pay is received by the company as income (though it may benefit from the small companies rate of 19% on profits under GBP 50,000). As a director, interest income you receive from the company is taxable income -- but there is no BIK.

Keeping the DLA below GBP 10,000 at all times during the year avoids the BIK entirely.

Clearing the DLA: Salary, Dividend or Repayment?

Directors have three main ways to clear an overdrawn DLA before the S455 deadline:

Repayment in cash: Simply transfer personal funds back into the company. Straightforward but requires the director to have sufficient personal liquidity.

Voting a salary: The company votes additional director salary. This clears the DLA but creates PAYE, employee NIC and employer NIC costs. Employer NIC is 15% above the GBP 5,000 secondary threshold for 2026/27 (note the Employment Allowance of GBP 10,500 may offset this). Salary is deductible for corporation tax.

Voting a dividend: The company declares a dividend credited directly against the DLA. The dividend must be legally valid -- the company must have sufficient distributable reserves. Dividend income uses the GBP 500 allowance in 2026/27, then 8.75% (basic), 33.75% (higher), or 39.35% (additional) depending on your tax band. Dividends are not deductible for corporation tax but save employer NIC compared with salary.

For most owner-managers, a combination of salary up to the NIC threshold and dividends is the most efficient extraction strategy. Use the CalcHub Dividend Tax Calculator to compare net receipts at different extraction levels.

Creditor Director Loan Accounts

The DLA can also work in the other direction: you may have lent money to your company in earlier years, putting the DLA in credit (the company owes you money). This is a creditor DLA.

A creditor DLA does not trigger S455 or BIK charges. You can draw down on it at any time without income tax or NIC -- it is simply repayment of a loan you made. Keeping records of the original loan is essential to demonstrate to HMRC that repayments are capital, not income.

However, HMRC will not allow you to charge the company interest unless there is a formal loan agreement and the interest rate is commercial. If you do charge interest:

• The company may deduct the interest expense (subject to transfer pricing and thin capitalisation rules for larger companies)
• You receive interest income, taxable at your marginal income tax rate (not dividend rates)
• For basic-rate taxpayers, the Personal Savings Allowance shelters GBP 1,000 of interest; higher-rate taxpayers have a GBP 500 allowance

If the company becomes insolvent, a creditor DLA ranks as an unsecured creditor alongside trade creditors -- it is not automatically preferential.

Record-Keeping and Filing Obligations

The company must disclose the DLA balance in its statutory accounts if it is material. For companies subject to small companies regime, the disclosures are less onerous but the DLA balance must still be identified.

For S455 purposes, the overdrawn balance at the year-end is disclosed in the Corporation Tax return (CT600), specifically in the supplementary pages for close companies. HMRC can enquire into DLA transactions as part of a broader corporation tax or PAYE enquiry.

Directors should maintain a personal record of all transactions affecting the DLA -- especially expenses claimed, cash drawings, salary credits, and dividend credits. Disputes with HMRC about the DLA balance are far easier to resolve with contemporaneous records.

If you operate through a personal service company (IR35) or a holding company with subsidiaries, the DLA rules apply at each company level separately. Loans between connected companies may also trigger transfer pricing considerations.

Consult a qualified accountant if your DLA balance is large or if you are approaching the S455 deadline without a clear repayment plan. The interest cost of commercial finance to repay the DLA may be cheaper than the S455 charge plus BIK exposure combined.