Limited Company Tax for Directors / Lesson 5 of 9
The director loan account
Nine months after year end, an overdrawn loan costs the company a third of it.
The short answer
- ✓ An overdrawn loan still outstanding nine months and a day after year end triggers a 33.75% company charge
- ✓ The charge is refundable, but only long after repayment
- ✓ Exceeding £10,000 at any point creates a taxable benefit in kind
- ✓ Repaying and re-borrowing within 30 days does not avoid the charge
What the loan account is
A running record of money owed between you and the company. It moves in both directions.
| Event | Effect |
|---|---|
| You lend the company money to start up | Company owes you, in credit |
| You pay a company cost personally | Company owes you |
| You take money that is not salary or dividend | You owe the company, overdrawn |
| You pay a personal cost from the company | You owe the company |
| An unlawful dividend is reclassified | You owe the company |
In credit is fine and you can withdraw it tax free, since it is your own money coming back. Overdrawn is where the charges begin.
The section 455 charge
If the loan is still outstanding nine months and one day after the company's year end, the company pays a charge of 33.75% of the outstanding balance.
Overdrawn at year end £20,000
Still outstanding after 9 months + 1 day
Section 455 charge, 33.75% £6,750
Paid by the COMPANY, not by you
Repay the loan and the charge is refunded,
but only nine months after the end of the
accounting period in which you repaid it.It is refundable, which people find reassuring until they see the timing. Repay in year two and the refund typically arrives in year four. That is a long time for the company to be without the cash.
Beneficial loan interest
Separately, if the loan exceeds £10,000 at any point in the year and you pay no interest or below HMRC's official rate, the difference is a taxable benefit in kind on you personally, reported on a P11D, with employer NI for the company.
Note the trigger: exceeding £10,000 at any point. Briefly going over and coming back down still counts.
Bed and breakfasting does not work
Repaying just before the nine month deadline and withdrawing again shortly after is specifically countered. Where £5,000 or more is repaid and a similar amount withdrawn within 30 days, the repayment is matched against the new withdrawal and the charge still applies.
The bit HMRC does not spell out
Writing off the loan does not solve it either. A written-off director's loan is treated as income in your hands, taxed broadly like a dividend, and it does not automatically remove the company-level position.
The realistic ways to clear an overdrawn loan are to repay it with personal money, or to declare a lawful dividend or salary and use that to clear the balance, which means paying the personal tax on that dividend or salary. There is no free route out, which is exactly why not letting it build up matters.
Common mistakes
- Letting the account drift overdrawn. Charges follow automatically.
- Assuming the section 455 refund is quick. It lags by years.
- Repaying and immediately re-borrowing. The 30 day rule counters it.
- Believing a write-off is clean. It is taxable income for you.
Try it on your own numbers
This is the same calculator as the full tool page, using 2026/27 rates.
Your director's loan
For a loan the director owes the company (an overdrawn loan account). Updates live.
Repay within 9 months & 1 day of your company year-end to avoid S455 tax.
Used for the benefit-in-kind on loans over £10,000. Check the current rate on GOV.UK.
Estimated tax cost
- Benefit-in-kind value
- Your income tax on the BIK
S455 is refundable once the loan is repaid (nine months after the end of the accounting period in which you repay it).
Saved scenarios
| Loan | Tax cost | |
|---|---|---|
Key takeaways
- ✓ An overdrawn loan still outstanding nine months and a day after year end triggers a 33.75% company charge
- ✓ The charge is refundable, but only long after repayment
- ✓ Exceeding £10,000 at any point creates a taxable benefit in kind
- ✓ Repaying and re-borrowing within 30 days does not avoid the charge
Check you have got it
3 quick questions. No score is kept, and you can change your mind.
1. When does the section 455 charge apply?
2. You repay the loan two days before the deadline and withdraw the same amount a week later. What happens?
3. The company writes off your overdrawn loan. What is the effect on you?
Sources
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