Comparison Guide · Updated June 2026
Repaying vs Writing Off an Overdrawn Director's Loan Account 2026
An overdrawn director's loan account (DLA) triggers S455 tax at 33.75% if not repaid within 9 months of the accounting year end. But S455 is eventually refunded — while writing off the loan creates an immediate income tax and NI charge. Here is a complete comparison of every option for 2026/27.
| Option | S455? | Director tax? | Employer NI? |
|---|---|---|---|
| Repay within 9 months | No | None | None |
| Leave unpaid (S455 applies) | 33.75% (refundable) | BIK if >£10k & no interest | 13.8% on BIK |
| Write off (waive) | No | Dividend tax (8.75–39.35%) | 13.8% (as employment benefit) |
| Clear via dividend offset | No (if declared in time) | Dividend tax | None |
| Bed-and-breakfast repayment | Yes (repayment ignored) | BIK risk | 13.8% on BIK |
Worked Example: £50,000 Overdrawn DLA
Higher-rate director, accounting year ended 31 March 2026. 9-month repayment deadline: 1 January 2027.
Option A: Repay before 1 Jan 2027
Option B: Write off the loan
Repaying is always cheaper if funds are available. Write-off is a last resort and creates significant tax leakage.
Option 1: Repay Within 9 Months — The Best Route
Repaying the overdrawn DLA in full within 9 months and 1 day of the accounting period end is always the most tax-efficient option. No S455 is charged, no director income tax arises, and no employer NI is payable. The director simply returns the money to the company. Where the director has personal savings or other assets, this should always be the first option considered.
Option 2: S455 Applies (Loan Left Unpaid)
If the loan is not repaid within the 9-month window, S455 tax at 33.75% is due in the company's corporation tax return — due 9 months and 1 day after the accounting period end (the same date as the repayment deadline). S455 is eventually refunded, but only 9 months after the end of the accounting period in which repayment is made — potentially a 2-year-plus wait. It is a loan to HMRC, not a final cost, but the cash flow impact is real.
Additionally, if the DLA balance exceeds £10,000 at any point during the tax year and no interest is charged at or above the official rate (2.25%), a taxable benefit in kind (BIK) arises for the director, with Class 1A NI payable by the company at 13.8%.
Option 3: Write Off the Loan
A write-off (or waiver) of the DLA is treated as a deemed distribution — the director is taxed as if they received a dividend. A higher-rate taxpayer pays 33.75% on the amount written off. In addition, the write-off is treated as a 'relevant benefit' and Class 1A National Insurance at 13.8% is payable by the company. The combined tax cost for a higher-rate director on a £50,000 write-off is £23,775 — versus nothing if repaid. Write-off is almost always worse than repayment and should only be used when the director genuinely cannot repay.
Option 4: Clear via Dividend Offset (No Cash)
The most practical option for many director-shareholders is to declare a formal dividend — approved by board resolution and properly documented — and offset the amount against the overdrawn DLA. No cash changes hands but the DLA is cleared. The director is taxed on the dividend at normal dividend rates. Critically, unlike a write-off, no employer NI applies to a properly declared dividend. This is the most common route where the company has distributable reserves but limited cash.
Verdict
Repay before the 9-month deadline if at all possible. If not, clear via a dividend offset if reserves exist — this avoids NI that a write-off would trigger. S455 is a last resort (it is refunded eventually) and write-off is the most expensive option for a higher-rate taxpayer. Plan DLA positions before year-end, not after.