Director's Loan Account and Corporation Tax: What You Need to Know
If you run a limited company and take money out that isn't salary or dividends, it goes through your director's loan account (DLA). An overdrawn DLA — where you owe money to the company — can trigger an extra corporation tax charge called Section 455 (S455) tax.
This guide explains how DLAs work, what the tax consequences are, and how to report them on your CT600.
What Is a Director's Loan Account?
A director's loan account is a record of all financial transactions between a director and their company. It tracks:
- Money you put into the company (credits) — personal loans to the company, expenses paid personally
- Money you take out (debits) — cash withdrawals, personal expenses paid by the company, goods purchased through the company
If the balance is in credit (the company owes you), there's generally no tax issue. If the balance is overdrawn (you owe the company), that's where corporation tax complications begin.
The Section 455 Tax Charge
When a director's loan account is overdrawn at the end of the company's accounting period, and the loan hasn't been repaid within 9 months and 1 day of the accounting period end date, the company must pay a Section 455 tax charge.
Key facts about S455 tax:
- Rate: 33.75% of the outstanding loan balance (for FY2024/2025, aligned with the higher dividend tax rate)
- It's not a deductible expense — S455 tax is paid in addition to your normal corporation tax
- It's temporary — you get the S455 tax back when the loan is repaid
- Due date: The S455 tax is due at the same time as your corporation tax — 9 months and 1 day after the end of the accounting period
Example
Your accounting period ends 31 March 2025. Your DLA shows you owe the company £10,000. If you haven't repaid this by 1 January 2026 (9 months and 1 day later), the company must pay:
£10,000 × 33.75% = £3,375 in S455 tax
How to Avoid the S455 Charge
There are several legitimate ways to clear or reduce an overdrawn DLA before the 9-month deadline:
- Repay the loan — Simply transfer the money back to the company's bank account.
- Declare dividends — If the company has sufficient distributable reserves, you can vote yourself a dividend and offset it against the loan. (Note: dividend tax will still apply personally.)
- Declare a bonus — The company pays you a bonus (subject to PAYE and NIC) which is offset against the DLA. This creates a corporation tax deduction but increases payroll costs.
- Combination approach — Use a mix of repayment, dividends, and salary to bring the DLA back to zero or into credit.
Warning: HMRC's "bed and breakfasting" rules (S455(3A)) prevent directors from repaying a loan and then immediately drawing it out again. If you repay £5,000 or more and then take out a new loan of £5,000 or more within 30 days, HMRC treats the arrangement as if the original loan was never repaid.
Getting Your S455 Tax Back
Once the director's loan is repaid, the company can reclaim the S455 tax. The refund isn't automatic — you need to submit a form L2P to HMRC or include the repayment details when you file or amend your CT600.
The refund is typically processed 9 months after the end of the accounting period in which the loan was repaid. So there can be a significant delay between repaying the loan and getting the S455 tax back.
Reporting on Your CT600
When you have an overdrawn DLA, you'll need to:
- Complete the CT600A supplementary page — This is the "Loans to Participators" page, specifically designed for S455 reporting.
- Box 1 of CT600A — Enter the total amount of loans outstanding at the end of the accounting period that haven't been repaid within 9 months.
- Box 86 of CT600 — The S455 tax is added to your total tax liability.
If a loan from a previous period has been repaid during the current period, you'll complete the relief section of CT600A to claim the S455 tax back.
Other Tax Implications of Director's Loans
Benefit in Kind
If the overdrawn DLA balance exceeds £10,000 at any point during the tax year, HMRC treats the loan as a benefit in kind. This means:
- The company pays Class 1A NIC (13.8%) on the benefit
- The director pays income tax on the beneficial loan rate (currently 2.25%)
- This must be reported on form P11D
Write-Off
If the company writes off the director's loan (i.e., says "you don't have to pay it back"), the written-off amount is treated as:
- A distribution for income tax purposes — taxed as a dividend on the director
- The company still owes any S455 tax until the write-off happens
- The company can claim corporation tax relief on the amount written off (as it's effectively a cost to the company)
Key Deadlines Summary
| Event | Deadline |
|---|---|
| Accounting period ends | Day 0 |
| Repay DLA to avoid S455 | 9 months + 1 day |
| S455 tax payment due | 9 months + 1 day |
| CT600 filing deadline | 12 months after period end |
| S455 refund (after repayment) | 9 months after end of period in which repaid |
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