Director’s Loan Account & S455 Charge: 2026 Guide
This is a complete detailed guide on Director’s Loan Account, updated 2026 — covering exactly what an overdrawn DLA is, how the S455 charge is calculated, the current rate, deadlines, benefit-in-kind rules, and a worked practical example. This guide from Filing Accounts UK uses only verified facts based on the Corporation Tax Act 2010 and current HMRC rates.
At Filing Accounts, we help UK limited company directors manage director’s loan accounts and Corporation Tax compliance. Always check your company’s current position against the official GOV.UK guidance on director’s loans.
What Is a Director’s Loan Account (DLA)?
A Director’s Loan Account (DLA) records every financial transaction between a director and their company that isn’t salary, dividends, or a reimbursed business expense. It tracks money you’ve put into the company and money you’ve taken out personally. If the company owes you money, your DLA is in credit, and this can generally be repaid to you tax-free. If you’ve taken out more than you’ve put in, your DLA is overdrawn — and this is where the tax exposure begins.
What Is the S455 Charge?
Section 455 of the Corporation Tax Act 2010 imposes a tax charge on close companies — broadly, companies controlled by five or fewer participators (shareholders and their associates) — that make loans to a participator, such as a director, which remain outstanding after the statutory deadline. Without this charge, directors could effectively extract company profits tax-free through loans instead of salary or dividends. The S455 charge closes that gap by taxing the company on any overdrawn loan balance still outstanding nine months and one day after the end of the relevant Corporation Tax accounting period.
The Current S455 Rate (2026)
The S455 rate is directly linked to the dividend upper rate and rises automatically whenever that rate changes, without separate legislation. Following the increase to the dividend upper rate announced at the Autumn Budget 2025, the S455 rate rose from 33.75% to 35.75% for loans and benefits conferred on or after 6 April 2026.
| Period Loan Was Made | S455 Rate |
|---|---|
| Before 6 April 2016 | 25% |
| 6 April 2016 – 5 April 2022 | 32.5% |
| 6 April 2022 – 5 April 2026 | 33.75% |
| On or after 6 April 2026 | 35.75% |
Crucially, the rate that applies is determined by when the loan was made — not by when the nine-month deadline falls, or when the Corporation Tax Return is eventually filed. Where a DLA contains advances made at different times spanning the rate change, different portions of the balance can be taxed at different rates, which makes accurate, transaction-level bookkeeping essential rather than relying on a single closing balance figure.
Practical Example: How to Calculate the S455 Charge
Scenario: A company has a 31 March year end. Its director takes an overdrawn director’s loan of £20,000 in June 2026. The loan is still outstanding on the nine-month-and-one-day deadline following the year end.
- Outstanding balance: £20,000
- Loan made after 6 April 2026, so the applicable rate is 35.75%
- S455 charge: £20,000 × 35.75% = £7,150
This £7,150 is paid by the company alongside its Corporation Tax liability, reported on the CT600A supplementary pages, and is due by the company’s normal Corporation Tax payment deadline (nine months and one day after the accounting period end).
Mixed-rate example: Suppose the same director’s DLA totals £40,000 at the year end, made up of £25,000 advanced before 6 April 2026 (taxed at 33.75%) and £15,000 advanced after that date (taxed at 35.75%). The S455 charge would be calculated separately on each portion: (£25,000 × 33.75%) + (£15,000 × 35.75%) = £8,437.50 + £5,362.50 = £9,800 total.
Benefit-in-Kind Charge on an Overdrawn DLA
S455 isn’t the only tax exposure from an overdrawn DLA. If the outstanding balance exceeds £10,000 at any point during the tax year, HMRC treats it as an employment-related “beneficial loan,” creating a separate benefit-in-kind (BiK) charge — unless the director pays interest to the company at or above HMRC’s official rate.
For 2025/26 and 2026/27, HMRC’s official rate of interest for beneficial loan arrangements is 3.75% (this rate is reviewed periodically and can change during the year — check the current figure on the official HMRC beneficial loan arrangements rates page).
Example: A director has a £30,000 overdrawn DLA for the full tax year and pays no interest to the company. The taxable benefit is £30,000 × 3.75% = £1,125. Consequences of this benefit:
- The company reports the benefit on form P11D and pays Class 1A National Insurance at 13.8% on it (£1,125 × 13.8% = £155.25)
- The director pays Income Tax on the benefit, usually via their tax code or Self Assessment
Charging the company interest at or above the 3.75% official rate removes the benefit-in-kind charge entirely — but any interest paid must be genuine, actually paid, and properly reported, not simply a notional year-end bookkeeping adjustment.
Can You Reclaim the S455 Charge?
Yes — the S455 charge is temporary, not a permanent penalty. Once the overdrawn loan has been fully repaid, written off, or released, the company can reclaim the tax it paid. However, this is not automatic, and the cash can be tied up for a considerable period:
- If the loan is repaid within nine months and one day of the year end, no S455 charge arises in the first place — it’s simply reported (with a nil liability) on CT600A.
- If the charge has already been paid and the loan is repaid later, the company must apply for a refund using form L2P.
- The refund can only be claimed nine months after the end of the accounting period in which the repayment was made — not the accounting period the original loan related to.
- Claims must generally be made within four years of the end of the accounting period in which the repayment, write-off, or release occurred.
Writing Off an Overdrawn DLA
Writing off or releasing an overdrawn loan does not make the tax consequences disappear — it simply changes what they are. For a director who is also a shareholder (a “participator”), the amount written off is normally treated as distribution income under the close company rules, taxed on the director personally in a similar way to a dividend. The company does not get Corporation Tax relief for the amount written off.
“Bed and Breakfasting” Anti-Avoidance Rules
Some directors attempt to repay an overdrawn loan just before the year end, then withdraw a similar amount again shortly afterwards. HMRC’s anti-avoidance rules — sometimes referred to as “bed and breakfasting” rules — specifically target this pattern. Where repayments aren’t genuine, or a similar loan is taken out again shortly after repayment, HMRC can still treat the S455 charge as due, disregarding the temporary repayment. Any repayment used to avoid the charge needs to be a real, permanent reduction in the balance.
How Repayments Are Allocated: Clayton’s Case
Where a DLA contains multiple advances made at different times — for example, spanning the 6 April 2026 rate change — and a partial repayment is made, the order in which that repayment is applied matters. If neither the director nor the company specifies how a repayment should be allocated, HMRC generally applies the rule from Clayton’s case, treating repayments as applied to the oldest outstanding loans first. This can produce a less favourable tax outcome than the director intended, which is why clearly documenting how a repayment should be allocated — in board minutes or a formal note — is important whenever a DLA spans more than one rate period.
How to Avoid or Reduce the S455 Charge
- Repay the loan in full within nine months of the year end — the cleanest solution, and no S455 charge arises at all.
- Declare a dividend to clear the balance, where the company has sufficient retained profits — this formalises the withdrawal as post-tax profit, though it creates a personal dividend tax liability.
- Charge interest at or above HMRC’s official rate to eliminate any benefit-in-kind exposure on balances over £10,000.
- Review the DLA regularly, rather than waiting until the year end, so there’s time to plan a repayment before the nine-month deadline arrives.
- Document repayment allocation clearly where the balance spans more than one S455 rate period.
S455 and DLA at a Glance
| Item | Detail |
|---|---|
| Who it applies to | Close companies (5 or fewer participators) |
| Trigger | DLA overdrawn 9 months + 1 day after year end |
| Current S455 rate | 35.75% (loans from 6 April 2026) |
| Reported on | CT600A supplementary pages |
| BiK threshold | DLA balance over £10,000 at any point in the tax year |
| HMRC official interest rate | 3.75% (2025/26 and 2026/27) |
| Reclaim form | L2P |
| Reclaim time limit | 4 years from end of repayment accounting period |
Common Mistakes Directors Make
Waiting Until the Year End to Check the DLA
Reviewing the balance only at year end leaves little time to plan a repayment or dividend before the nine-month deadline.
“Bed and Breakfasting” the Loan
Repaying a loan just before year end and re-borrowing a similar amount shortly after is specifically targeted by anti-avoidance rules and can still trigger the S455 charge.
Ignoring the Separate Benefit-in-Kind Charge
Clearing the S455 exposure doesn’t remove a benefit-in-kind liability that arose while the balance exceeded £10,000 during the year.
Not Documenting Repayment Allocation
Without clear instructions, HMRC applies repayments to the oldest loans first under Clayton’s case, which can produce a worse tax outcome than intended.
Assuming a Write-Off Has No Tax Consequences
Writing off a loan to a director-shareholder is generally treated as distribution income and taxed accordingly — it does not simply make the balance disappear tax-free.
Frequently Asked Questions
What is the current S455 charge rate?
35.75% for loans or benefits conferred on or after 6 April 2026, up from 33.75% previously.
When is the S455 charge due?
Nine months and one day after the end of the Corporation Tax accounting period in which the loan remains outstanding, paid alongside the company’s normal Corporation Tax bill.
Can I get the S455 charge back?
Yes, once the loan is repaid, written off, or released, using form L2P — but only within 4 years of the accounting period the repayment falls in, and it isn’t refunded immediately.
What counts as an overdrawn director’s loan?
Any amount a director has withdrawn from the company beyond their salary, declared dividends, and reimbursed expenses.
Does S455 apply to all companies?
No. It applies specifically to close companies — those controlled by five or fewer participators. Most small UK limited companies fall into this category.
What happens if my DLA is over £10,000?
A separate benefit-in-kind charge can apply on top of any S455 exposure, unless you pay the company interest at or above HMRC’s official rate (3.75% for 2025/26 and 2026/27).
Can I avoid S455 by repaying and re-borrowing the same amount?
No. HMRC’s “bed and breakfasting” anti-avoidance rules are designed specifically to catch this and can still impose the charge as if the loan was never repaid.
Need Help Managing Your Director’s Loan Account? Talk to Filing Accounts UK
An overdrawn DLA can create a significant, if temporary, cash-flow cost through S455, alongside separate benefit-in-kind exposure — and both are far easier to manage with an early review than after the nine-month deadline has passed. At Filing Accounts, we review director’s loan account positions as part of year-end accounts preparation for UK small businesses, helping you plan repayments and avoid unnecessary tax charges.
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