S455 Charge on Directors' Loan Accounts Explained 2026/27

The director's loan account (DLA) is a common feature of small owner-managed companies -- a running tab between the director and their company. When the director takes out more than they have put in or been formally credited, the account goes overdrawn. HMRC responds with the S455 charge: a 33.75% levy on the outstanding overdrawn balance, payable 9 months after the year end. Understanding when S455 applies, how to avoid or reclaim it, and the interaction with personal tax is essential for every company director.

How a director's loan account works

A director's loan account is a ledger entry in the company's books that records all transactions between the director as an individual and the company as a separate legal entity. Credits to the DLA arise from:

• Salary, dividends, or bonuses formally declared (even if not yet paid).
• Money the director lends or introduces into the company.
• Expenses the company owes to the director but has not yet repaid.

Debits arise from:

• Personal expenses paid on the director's behalf by the company.
• Cash withdrawals that are not salary or dividends.
• Purchases paid by the company for the director's personal benefit.

When the debit total exceeds the credit total at the company's accounting year end, the DLA is overdrawn.

The S455 charge: mechanics

S455 Corporation Tax Act 2010 imposes a charge on the company (not the director personally) equal to 33.75% of the overdrawn DLA balance at the year end. This rate mirrors the upper dividend rate, reflecting that loans to participators are a proxy for dividend extraction.

The charge is paid alongside the corporation tax return, due 9 months and 1 day after the year end. For a company with a 31 March 2026 year end:

• S455 balance calculated at 31 March 2026.
• Payment due: 1 January 2027.
• CT600 filed (including S455): within 12 months of year end.

Repaying the loan and reclaiming S455

If the director repays the overdrawn DLA before the S455 due date (9 months and 1 day after year end), the company should report this on the CT600 and no S455 is payable.

If the S455 has been paid but the loan is subsequently repaid, the company can reclaim the tax using form L2P (Relief from tax paid on a loan to a participator). The repayment from HMRC is made 9 months after the end of the accounting period in which the repayment was made.

Example: Company year ends 31 March 2026. S455 of £33,750 is paid on 1 January 2027. The director repays the loan in full on 1 June 2027 (in the accounting year ending 31 March 2028). The company can reclaim the £33,750 from 1 January 2029.

The 30-day bed-and-breakfasting rule

Section 464C CTA 2010 prevents directors from repaying loans shortly before the year end just to avoid S455, then drawing them back out again shortly after. If:

• The director repays £5,000 or more to clear the DLA, and
• Within 30 days, the director borrows an amount within that same £5,000+ threshold back again,

...then the repayment is ignored for S455 purposes and the original loan balance is treated as continuing. The rule applies to repayments made in the 30 days before the year end and 30 days after.

For arrangements where repayments and re-drawings exceed £15,000 but do not fall within 30 days, a parallel anti-avoidance rule (the "arrangements" rule) may still apply if it is clear from the outset that the intent was to cycle the funds to avoid S455.

Clearing the DLA: practical options

Declare a dividend: The most common approach. A director who also owns shares can declare a dividend to credit the DLA. The dividend reduces the company's retained profits, so the company must have sufficient distributable reserves. The director will owe dividend tax on the amount at 8.75%, 33.75%, or 39.35% depending on their income level.

Salary or bonus: A salary or bonus can be used to credit the DLA. This is subject to PAYE income tax and Class 1 National Insurance for both director and company, making it less efficient than a dividend for most owner-managers.

Director makes a repayment: The director can repay the loan from personal funds if available. This is the cleanest solution from a tax perspective but requires the director to have liquid funds.

Writing off the DLA: consequences

If the company formally writes off (releases) the director's loan, the released amount is treated as employment income in the hands of the director -- not a dividend and not a capital gain. This means:

• Income tax at up to 45%.
• Class 1 employee National Insurance (the director is treated as an employee for this purpose).
• Class 1 employer National Insurance for the company.

The total tax and NI cost of a write-off can exceed 60% of the amount written off. It is rarely the most efficient option.

Interaction with personal tax: the beneficial loan BIK

If the outstanding DLA balance exceeds £10,000 at any point in the tax year, and the director is not paying interest at or above HMRC's official rate, the director faces a benefit-in-kind charge:

• The taxable BIK = (Average loan balance x Official Rate) - Interest actually paid.
• For 2026/27, the HMRC official rate of interest is 2.25%.
• Reported on P11D or payrolled; taxed as employment income.
• Company also pays Class 1A NI at 13.8% on the BIK value.

Example: Average overdrawn DLA of £50,000 for the full tax year, no interest charged. BIK = £50,000 x 2.25% = £1,125. Director pays income tax on £1,125; company pays Class 1A NI of approximately £155.