What is a director's loan account?
A limited company is separate from the people who run it. Its money is not your money. A director's loan account (DLA) records money that moves between you and your company that isn't:
- salary or bonus paid through payroll,
- dividends, or
- repayment of business expenses you paid for personally.
For example, if you pay a personal bill from the company bank account, that goes on your director's loan account. If you lend your own money to the company, that goes on it too.
When the account is overdrawn
If you've taken out more than you've put in, the account is overdrawn: you owe the company money. If the company owes you money instead, the account is in credit, and the company can repay you at any time without extra tax.
An overdrawn account must be shown in the company's accounts and on its Corporation Tax return.
What is s455 tax?
If your director's loan account is overdrawn at the end of the company's accounting period, and you haven't repaid it within nine months and one day of that date, the company has to pay an extra tax called s455 (named after section 455 of the Corporation Tax Act 2010).
s455 is charged at 33.75% of the amount still owed. It is due on the same date as the company's Corporation Tax.
The good news: s455 isn't lost for ever. Once the loan is repaid or written off, the company can claim the tax back. HMRC repays it nine months and one day after the end of the accounting period in which the loan was repaid.
An example
Bright Studio Ltd's year ends on 31 March 2026. On that date the director owes the company £8,000. They repay £5,000 by 1 January 2027, leaving £3,000 owing.
s455 is due on the £3,000 still owed: £3,000 × 33.75% = £1,012.50, payable with the company's Corporation Tax by 1 January 2027.
Repaying and borrowing again
Repaying the loan just before the deadline and then taking the money straight back out doesn't work. Anti-avoidance rules can ignore repayments of £5,000 or more if you borrow again within 30 days, or if you plan to.
Loans over £10,000: benefit in kind
If the amount you owe goes over £10,000 at any point in the tax year and you pay no interest, or less than HMRC's official rate, it's treated as a benefit in kind. That means:
- you may pay personal Income Tax on the benefit,
- the company pays Class 1A National Insurance on it, and
- it must be reported to HMRC on a P11D.
Tips to stay on top of it
- Record everything as it happens. Every personal payment from the company account should go to the director's loan account.
- Check the balance before year end. Then you have time to plan how to clear it.
- Clear it with a dividend or salary. If the company has enough profit, a dividend can clear an overdrawn account. You'll pay personal tax on it, so check with your accountant which route is best.
- Watch the £10,000 limit during the year, not just at year end.
Munshian Ledger keeps a running director's loan account for each director and flags when s455 might be due, along with the date you need to repay by.
This guide is general information, correct as we understand it at the date shown. It isn't tax advice for your situation. Tax rates and rules change, so check GOV.UK or speak to an accountant.