Take money out of your own company without calling it salary or a dividend and you have made a loan to yourself. If it is still outstanding nine months and a day after the year end, the company pays 35.75% of it to HMRC under section 455 — a charge that is refundable, eventually, but which ties up real cash and surprises directors who assumed the money was simply theirs. The rate rose from 33.75% for loans made on or after 6 April 2026, which makes an overdrawn director's loan account a more expensive habit than it was last year.
What section 455 actually charges
The rule applies to close companies — broadly, companies controlled by five or fewer participators, which covers almost every owner-managed business in the country. Where such a company lends to a participator (a shareholder, or an associate of one) and the loan is still outstanding at the end of the accounting period, the company owes section 455 tax on the balance unless it is cleared within nine months and one day of the period end. The charge is 35.75% for loans made on or after 6 April 2026, and 33.75% for loans made between 6 April 2022 and 5 April 2026 — the rate tracks the higher dividend rate deliberately, so that lending yourself money is no cheaper than declaring a dividend.
Two points catch people out. First, the charge sits in the corporation tax return and is payable on the normal corporation tax due date, so a loan outstanding at the year end quietly becomes a cash liability nine months later. Second, it is the company that pays, not the director — the company funds a tax bill on money the director has already spent, which is precisely the cash-flow problem that makes overdrawn loan accounts unpopular with finance directors and lenders alike.
Getting the money back
Section 455 is a deposit, not a penalty: repay the loan, and section 458 gives the company relief. The timing is the part that disappoints. Relief is not paid the moment the loan is repaid — it falls due nine months and one day after the end of the accounting period in which the repayment happens, and it has to be claimed. Repay a loan in month one of a new accounting period and the refund arrives the best part of two years later. Claims must be made within four years of the end of the financial year in which the loan was repaid, released or written off; miss that and the deposit is simply gone.
HMRC also closed the obvious workaround. "Bed and breakfasting" — repaying the loan just before the nine-month deadline and drawing it again days later — is blocked by two anti-avoidance rules: repayments of £5,000 or more matched with new borrowing within 30 days are treated as repaying the new loan rather than the old one, and where the balance is £15,000 or more, arrangements to redraw defeat the repayment regardless of the 30-day window. A December repayment funded by a January redraw is not a repayment; it is an audit finding waiting to happen.
The benefit-in-kind layer nobody plans for
Section 455 is not the only cost of an overdrawn account. If the balance exceeds £10,000 at any point in the tax year and the director pays no interest — or pays less than HMRC's official rate — the difference is a taxable benefit. The official rate is 3.75% for 2026/27, the director pays income tax on the deemed interest through the P11D, and the company pays Class 1A National Insurance at 15% on top. Get the direction right here, because it is commonly reversed: the company is the lender and the director is the borrower, so it is the director who pays interest to the company. Where the director pays interest at or above the official rate, the cheap-loan benefit is reduced or eliminated — but the interest received is income of the company, not of the director, and paying it does nothing to the separate section 455 charge, which stands until the loan is repaid, released or written off.
Writing the loan off is worse than it looks. The amount released is taxed on the participator as a distribution — at dividend rates, so 10.75%, 35.75% or 39.35% depending on the band — and where the loan is genuinely employment-related, HMRC will look at National Insurance as well. The company gets its section 455 money back on the write-off, but it gets no corporation tax deduction for the amount written off. A write-off is the most expensive way to end the story.
Running a clean loan account
The directors who never think about section 455 are the ones whose bookkeeping distinguishes, in real time, between expense reimbursements, salary, dividends and genuine loans. The habits that keep it that way:
- Watch the year-end balance, not the average. The charge is on the outstanding amount at the period end (as adjusted for the nine-month window), so a balance that swings through the year is judged on one date;
- Declare dividends properly, or not at all. Drawings recorded as dividends without minutes, distributable reserves and the paperwork to match are not dividends — they are loans, and they attract section 455 on review;
- Document the loan where one is genuinely intended: amount, interest, repayment terms. It costs nothing and answers the first question an inspector asks;
- Watch the reserves. A dividend paid out of profits the company does not have is unlawful and reverts to a loan — which restarts this entire chapter;
- Plan the extraction mix annually. With employer National Insurance at 15% above £5,000 and dividends taxed at 35.75% in the higher band, the salary-versus-dividend arithmetic has moved; the answer that was right in 2023 is often not the right one now.
When it is still the right call
None of this makes a director's loan wrong. Short-term, documented borrowing repaid inside the nine-month window costs nothing at all in section 455 terms, and it is frequently the cleanest way to bridge a personal cash need without triggering an immediate income tax charge. The mistake is drift: a balance that grows quietly across three years until the company owes a section 455 deposit it cannot fund, on money that has long since been spent.
Acumon handles loan account planning as part of corporation tax and tax planning work — the extraction mix, the timing of repayments, the section 458 claims that get the deposit back, and the statutory accounts disclosure that keeps lenders comfortable. If your loan account has been growing for a while, the cheapest moment to deal with it is the one before the year end, not the one after.