The S455 Tax Charge on Directors Loans Has Gone Up: Here Is What to Do About It

By Robert Marjoram, Together Accounting

From 6 April 2026, the S455 tax charge on overdrawn director’s loan accounts rose from 33.75% to 35.75%. That’s a 2 percentage point jump tied directly to the dividend upper rate, and if you have a director’s loan account, 2026 is the year the charge got meaningfully more expensive.

On a £50,000 overdrawn balance the company now faces £17,875 in S455 tax. Under the old rate that figure was £16,875. The same balance, a thousand pounds more out the door. On £100,000 overdrawn, the gap is £2,000.

If your year-end was 31 March 2026, your repayment deadline is 1 January 2027. If your year-end was 30 April 2026, you’re looking at 1 February 2027. These dates arrive faster than directors expect, so let’s work through what S455 actually is, what it costs, and the four ways to deal with an overdrawn balance before the deadline catches you.

Figure 1

S455 Rate Change and Cost Impact by Loan Balance

Loans made before 6 April 2026 remain at 33.75%. Loans made on or after 6 April 2026 are charged at 35.75%.

Before 6 April 2026 33.75% S455 rate on overdrawn DLA

→

From 6 April 2026 35.75% S455 rate on overdrawn DLA

Extra S455 cost from the 2-point rate rise

£25,000 loan	+£500
£50,000 loan	+£1,000
£80,000 loan	+£1,600
£100,000 loan	+£2,000

What a Director’s Loan Account Actually Is

A director’s loan account, or DLA, is the running tally of money flowing between you personally and your limited company that isn’t salary, isn’t a formally declared dividend, and isn’t a legitimate business expense you’ve been reimbursed for.

When the company owes you money, the DLA is in credit. That’s normal and not a tax problem. When you owe the company money, the DLA is overdrawn. That’s where S455 lives.

Directors rarely set out to run an overdrawn DLA. It happens quietly, often through habits that feel harmless at the time:

• Drawings taken in advance of a formal dividend declaration, never properly papered up later
• Personal items put on the business credit card and not repaid promptly
• Holiday bookings, school fees, or a new phone paid by the company “to sort out later”
• Expense claims that don’t quite stack up, or are slightly overstated
• A van or piece of equipment bought through the company that turns out to have personal use bolted onto it

By the time the year-end accounts come back from the accountant, what felt like a few small drawings now adds up to £20,000, £40,000, or more sitting on the wrong side of the ledger. And it’s that closing balance that triggers everything we’re about to cover.

A quick word on who can hold one: any shareholder or director of a close company can have a director’s loan account. Most UK small limited companies are close companies, which means HMRC treats them broadly as controlled by five or fewer participators or by their directors. If that’s you, the rules in this article apply.

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The S455 Charge: How It Works and What It Now Costs

The 9-month rule: if a director’s loan account is overdrawn at the company’s year-end and the balance isn’t repaid within 9 months and 1 day of that year-end, the company must pay S455 tax on the outstanding amount.

From 6 April 2026, the S455 tax rate is 35.75%, up from 33.75%, on loans to participators from close companies outstanding at the 9-month deadline.

S455 is the corporation tax charge on loans from a close company to its participators. It sits in section 455 of the Corporation Tax Act 2010, and it’s designed to stop directors using their company as a tax-free personal bank. Without it, you could draw cash out of the company indefinitely and never pay income tax on it.

Here’s the mechanic. If your DLA is overdrawn at the end of an accounting period, and the loan is still outstanding 9 months and 1 day after that period ends, the company pays S455 on the outstanding balance. The rate from 6 April 2026 is 35.75%. Loans made before that date stay at 33.75%, so if your balance straddles the rate change, your accountant will need to apportion.

The deadline aligns with the corporation tax payment date. If your accounting period ends 31 March 2026, your S455 deadline is 1 January 2027. If it ends 30 June 2026, your S455 deadline is 1 April 2027. No grace, no extension, no payment plan as of right.

A Worked Example

Take a director with a £50,000 DLA balance, all built up after 6 April 2026, and a 31 March 2027 year-end with the loan still outstanding on 1 January 2028. S455 charge: £50,000 × 35.75% = £17,875. That’s £17,875 of corporation tax the company has to find, on top of its normal CT bill. Under the old 33.75% rate the same balance would have cost £16,875. The 2026 change costs that company an extra £1,000.

The 2026 rate change costs a director with a £50,000 overdrawn DLA an extra £1,000 in corporation tax — for the same loan, the same balance, and the same delay in repayment.

Is It Refundable?

Yes, but the timing is brutal. Section 458 of CTA 2010 lets the company reclaim the S455 once the loan is repaid, written off, or otherwise cleared. The catch: the refund isn’t due until 9 months after the end of the accounting period in which the repayment happens. So if you repay the loan in May 2027, in a year ending 31 March 2028, the S455 doesn’t come back until 1 January 2029. That’s a long time for the company to be out of pocket.

Claims for s.458 relief must be made within 4 years of the end of the financial year in which the repayment falls.

One practical wrinkle worth flagging: HMRC has confirmed on GOV.UK that its Corporation Tax online filing service won’t be updated to calculate the 35.75% rate until 6 April 2027. If your return includes loans at the new rate and you need to file before that date, you’ll need to amend the return after 6 April 2027 to reflect the new rate. Your accountant should be on top of this, but it’s worth asking the question.

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The £10,000 Benefit-in-Kind Trap on Director Loans

Figure 2

Key Thresholds to Know

£10,000 Benefit-in-kind trigger If your loan exceeds £10,000 at any point in the tax year, a P11D is required and the company pays Class 1A NIC at 15% on the benefit value.	3.75% Official rate of interest (2026-27) The notional interest rate used to calculate the benefit-in-kind value. Pay this rate to the company and the BIK disappears. Reviewed quarterly — unchanged from 2025-26.
£5,000 / 30 days Bed-and-breakfasting: 30-day rule (s.464ZA(1)) If you repay £5,000 or more and take a new loan of £5,000 or more within any 30-day window, HMRC treats the original debt as uncleared. The S455 charge still applies.	£15,000 / no time limit Bed-and-breakfasting: arrangements rule (s.464ZA(3)) If your balance is at least £15,000 before repayment, and arrangements exist for £5,000 or more in new loans, the repayment is matched to those arrangements — regardless of timing.

S455 isn’t the only tax exposure on a DLA. If the aggregate of all loans from the close company to you exceeds £10,000 at any point during the tax year, the loan becomes a taxable benefit in kind.

That triggers three things:

1. Income tax for the director on the notional interest, calculated using HMRC’s official rate of interest
2. A P11D filing obligation for the company by 6 July following the tax year
3. Class 1A NIC for the company at the employer rate (15% in 2026-27) on the benefit value

The official rate of interest for 2026-27 is 3.75%, unchanged from 2025-26. The rate can change quarterly, so check it before each P11D. For wider context on employer NIC and its 2026-27 cost, see what it really costs to employ someone in 2026-27.

Here’s where competitor articles often get this wrong, so pay attention. The benefit-in-kind on a beneficial loan is taxed at the director’s marginal income tax rate, 20%, 40% or 45%. It isn’t taxed at dividend rates. The write-off of a loan is different and we’ll come to that. The BIK on a live, ongoing loan above £10,000 is employment income.

Take a director with a £12,500 loan outstanding all year, paying no interest to the company, on a higher-rate salary. The BIK value is £12,500 × 3.75% = £468.75. Income tax at 40% costs the director £187.50. The company pays Class 1A NIC at 15% on the same £468.75, which is £70.31. Total cost for the year: £257.81.

The clean fix in this scenario: have the director pay interest to the company at or above the official rate. The benefit disappears, the P11D goes away, and the £468.75 of interest stays inside the company instead of being skimmed off by HMRC.

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Four Ways to Clear Your Overdrawn Director’s Loan Account

Once you know you have an overdrawn balance and the 9-month clock is running, you have four practical options. Each has consequences. None of them is a free pass.

Figure 3

Four Routes to Clear an Overdrawn DLA: Headline Comparison

Illustrative costs on a £25,000 overdrawn balance, basic-rate director (2026-27 rates). Always take advice on your specific position.

① Dividend Declare a dividend, credit it to the DLA. Cleanest route if reserves allow. Personal tax cost ~£2,688 10.75% dividend tax on £25,000 in basic rate band. S455 of £8,938 avoided entirely.

② Salary / bonus Run a bonus through payroll, credit net pay against the DLA. Works but costly. Combined tax cost Highest Income tax + employee NIC + 15% employer NIC on gross bonus. Most expensive route for most directors.

③ Repay in cash Transfer personal funds back into the company. No personal tax event at all. Personal tax cost £0 Zero tax — but you need the cash. Beware the 30-day bed-and-breakfasting trap if you redraw.

④ Write off Company formally releases the debt. Messy consequences — see below. Personal tax cost ~£2,688+ Taxed as dividend income under ITTOIA s.415. Possible Class 1 NIC on top. No CT deduction for company.

1. Declare a Dividend

If the company has distributable reserves, declaring a dividend that gets credited against the DLA is usually the cleanest route. The company books the dividend, the director’s personal tax liability sits on the dividend at the relevant rate, and the DLA goes to nil.

The 2026-27 dividend rates are 10.75% basic, 35.75% higher, 39.35% additional, after the £500 dividend allowance. A £25,000 dividend that sits entirely in the basic rate band costs roughly £2,687.50 in personal tax. Compare that to an unaddressed £25,000 DLA: £25,000 × 35.75% = £8,937.50 in S455 charge. The dividend route is normally three to four times cheaper. For more on sequencing salary and dividend together, see our guide to the optimal director salary for 2026-27.

The watch-out: you need genuine distributable reserves. You can’t declare a dividend out of fresh air. And the dividend must be formally minuted and properly papered, not just retrospectively written into the accounts at year-end.

2. Take Additional Salary or Bonus

You can clear a DLA by putting a bonus through payroll and crediting the net pay against the loan balance. It works, but it’s almost always the most expensive route. The bonus attracts income tax at 20%, 40% or 45%, employee NIC at the relevant rate, and employer NIC at 15%. For most directors the all-in marginal cost is well above the dividend equivalent.

Salary clearance is worth considering only if the company doesn’t have distributable reserves and the director needs to clear the DLA quickly.

3. Repay in Cash from Personal Funds

The cleanest option mechanically: transfer the money back into the company bank account from your personal funds. The DLA returns to nil. No S455. No personal tax event. No P11D.

The obvious problem: most directors with an overdrawn DLA don’t have the cash sitting around. If they did, they wouldn’t have an overdrawn DLA. Where this works is for directors who have personal savings, an ISA they’re prepared to dip into, or a separate income source.

A vital warning though: be very careful about repaying and then redrawing. That’s the bed-and-breakfasting trap, covered below.

4. Write Off the Loan

The company can formally release the director from the obligation to repay. The loan disappears from the balance sheet. But the consequences are messy.

For the director: the written-off amount is treated as dividend income under ITTOIA 2005 s.415, taxed at the director’s applicable dividend rate. So an £80,000 write-off on a higher-rate director costs them roughly the same in personal tax as taking an equivalent dividend.

For the company: no corporation tax deduction. CTA 2009 s.321A specifically denies a loan relationship deduction for written-off loans. The company gets nothing back against its CT bill.

For the S455 already paid: a write-off counts as repayment for s.458 purposes, so the S455 becomes reclaimable. But, again, not until 9 months after the end of the accounting period in which the write-off happens.

The most complex consequence, and the one most often overlooked, is the National Insurance position. The NIC legislation doesn’t include the same priority rule that the income tax legislation does. HMRC may argue that Class 1 NIC, both employer’s and employee’s, is due on the written-off amount on top of the income tax. The HMRC manual NIM12020 covers this. The professional view varies, and the outcome is genuinely disputed. Anyone considering a write-off should take specialist NIC advice before pulling the trigger. Don’t assume the dividend treatment under s.415 ITTOIA blocks NIC liability. It may not.

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The Bed-and-Breakfasting Trap

This is the rule that catches directors who think they’ve been clever. The setup: clear the DLA just before the 9-month deadline by transferring personal funds in, then quietly redraw the money a couple of weeks later as a new loan. On paper the loan is repaid. S455 avoided.

HMRC saw this coming a decade ago. CTA 2010 s.464ZA contains two anti-avoidance tests, and you don’t want to fall foul of either.

The 30-Day Rule, s.464ZA(1)

If within any 30-day window the director repays £5,000 or more, and the company makes new loans of £5,000 or more, HMRC treats the repayment as applying to the new loan, not the original debt. The original loan stays outstanding for S455 purposes. The S455 charge still falls due.

The 30-day window runs from 30 days before the period end through to 9 months and 30 days after it.

A working example: a director with a £60,000 overdrawn DLA at 31 March 2026 transfers £60,000 in from personal savings in early December 2026, two weeks before the 1 January 2027 deadline. Three weeks later, on 28 December 2026, they transfer £45,000 back out as a new director’s loan. The 30-day rule kicks in. HMRC treats £45,000 of the original repayment as matching the new loan. Only £15,000 is treated as genuinely clearing the original debt. £45,000 of the original balance is still treated as outstanding, and the S455 charge applies to it.

The Arrangements Rule, s.464ZA(3)

This one is worse, because there’s no time limit. If the director’s DLA balance is at least £15,000 before the repayment, and at the time of repayment “arrangements” exist for at least £5,000 of new loans, the repayment is matched to those arrangements.

“Arrangements” is deliberately broad. It includes informal understandings, unilateral arrangements the company isn’t a party to, and even cases where the director borrows personally from a bank, repays the DLA, then has the bank loan repaid by the company later. If HMRC can demonstrate the repayment was always going to be reversed, the arrangements rule bites.

The takeaway: don’t repay and redraw without taking advice. If you genuinely need to clear and then start a fresh loan in a new period, leave a substantial gap, document the business reason, and make sure the redraw isn’t pre-planned.

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Real-World Director’s Loan Account Scenarios

Landlord-Director with a £35,000 DLA, Year-End 30 April 2026

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Director’s Loan Account 9-Month Deadline by Year-End

If you only take one table away from this article, take this one. Find your year-end, read off your deadline, and put a calendar reminder in for 90 days before that date.

A linked admin point worth flagging: HMRC’s Corporation Tax online service changes page confirms a series of service updates running through 2026 and into 2027. That doesn’t change the S455 deadlines, but if you self-file you’ll want to check the page before submitting any 2026-27 return that touches the new 35.75% rate.

Figure 4

How the 9-Month Deadline Works

Your S455 payment deadline is always 9 months and 1 day after your accounting period end date — the same day your corporation tax is due.

Your Year-end date

+

Wait 9 months & 1 day

=

Your S455 deadline

Example 1 31 Dec 2025 Year-end 1 Oct 2026 S455 deadline

Example 2 31 Mar 2026 Year-end 1 Jan 2027 S455 deadline

Example 3 30 Apr 2026 Year-end 1 Feb 2027 S455 deadline

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What Directors With an Overdrawn Loan Account Should Do Now

A practical checklist for any director with, or possibly with, an overdrawn DLA:

1. Get your DLA balance. Ask your accountant or bookkeeper for the current figure. Not the last set of statutory accounts, the live figure as of this week. Many overdrawn balances grow quietly between year-ends.
2. Identify your year-end and 9-month deadline. Mark the deadline in your calendar with a reminder 90 days out.
3. Check whether you crossed £10,000 at any point in the tax year. If yes, you have a P11D obligation and a BIK to calculate.
4. Review your distributable reserves. Can the company afford a dividend large enough to clear the DLA? If not, you’ll need a different route.
5. Check your personal income position. A large dividend used to clear a DLA may push you into the higher rate band, where the cost is 35.75%. Sometimes a partial clearance now and a planned second clearance in the next tax year is more efficient.
6. If your balance straddles 6 April 2026, ask your accountant to apportion. Pre-April loans stay at 33.75%, post-April loans go to 35.75%. The CT600A needs both figures.
7. If you’re considering a write-off, get specialist NIC advice first. The NIC position is genuinely disputed and a careless write-off can cost more than it saves.
8. If you’re considering repay-then-redraw, don’t do it without advice. The bed-and-breakfasting rules are wider than most directors realise, and the arrangements rule has no time limit.
9. Talk to your accountant 60 to 90 days before the deadline, not on the deadline. Resolution routes need lead time, and our tax year-end checklist for directors covers the wider review you should run at the same time.

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Final Word

We review overdrawn director’s loan accounts regularly at Together Accounting, and the pattern is consistent. The balance that catches a director off guard is almost never a single large withdrawal. It’s the accumulation of small things: the quarterly drawings that never got formally papered as dividends, the business credit card used for a family holiday, the equipment purchase where personal use crept in. By the time the year-end accounts arrive, a director who thought they had a manageable DLA finds they have an S455 problem instead.

This is one of those tax charges that catches directors out because the rules sound technical until they suddenly aren’t, and by then the deadline has passed and the company is writing a five-figure cheque it didn’t budget for. The 2026 rate change has made an existing problem more expensive. The fix is rarely complicated, but it does need to happen with time to spare.

Get the latest DLA balance, work out your deadline, and pick a route while you’ve still got a choice between them. Together Accounting works with limited company directors across Norfolk and the rest of the UK on exactly this. If your accounts pack has an overdrawn director’s loan account and you want a clear plan before the deadline arrives, Get in Touch.