If you're a director of your own limited company, you almost certainly have a directors' loan account (DLA). It tracks every penny that moves between you and the company — and it can have a direct impact on your Corporation Tax return.
Get it wrong, and you could face a surprise tax bill. Here's what you need to know.
What is a directors' loan account?
A directors' loan account is a record of all the money you've borrowed from your company, lent to your company, or taken out as payments that aren't salary or dividends.
Think of it as a running tab between you and your business.
Money going IN to the DLA (you owe the company less):
- Salary payments credited to your account
- Dividends declared in your favour
- Expenses you've paid personally for the company
- Personal money you've lent to the company
Money going OUT of the DLA (the company owes you, or you owe the company):
- Cash withdrawals from the company bank account
- Personal expenses paid by the company
- Company credit card used for personal purchases
If the balance is positive (the company owes you money), that's fine — no tax implications.
If the balance is negative (you owe the company money), that's an "overdrawn directors' loan account" — and that's where things get complicated.
When does an overdrawn DLA matter for your CT600?
An overdrawn DLA at the end of your company's accounting period triggers Section 455 Corporation Tax (sometimes called S455 tax). This is a penalty tax that HMRC charges when a close company lends money to its participators (usually directors/shareholders).
What is Section 455 tax?
- Rate: 33.75% of the outstanding loan amount (for 2024/25 and 2025/26)
- When it's due: 9 months and 1 day after the end of the accounting period
- When you get it back: When the loan is repaid, the S455 tax is refunded (but it can take 9+ months to get the refund)
Example
Your company's year-end is 31 March 2026. At that date, you owe the company £10,000.
- S455 tax due: £10,000 × 33.75% = £3,375
- Payment deadline: 1 January 2027
- If you repay the £10,000 by 31 March 2027, HMRC refunds the £3,375 (eventually)
This is in addition to any normal Corporation Tax your company owes. It's reported on your CT600 in specific boxes.
Which CT600 boxes are affected?
Box 360 — Loans to participators (S455)
This is where you declare the total amount of loans outstanding to participators (directors/shareholders) at the end of the accounting period. Enter the total amount owed by all directors, not just you.
Box 365 — S455 tax due
The amount of S455 tax payable. This is 33.75% of the amount in Box 360.
Box 370 — Loans repaid
If loans that were reported in a previous period's Box 360 have been repaid during this period, enter the repaid amount here. This triggers a relief claim.
Box 375 — S455 relief due
The S455 tax refund due on repaid loans (33.75% of Box 370).
How to avoid Section 455 tax
The simplest approach: make sure your DLA isn't overdrawn at your year-end.
1. Declare a dividend before year-end
If you've withdrawn more than your salary, declare a dividend to cover the excess. The dividend clears (or reduces) the DLA balance. But you can only declare dividends up to the company's retained profits — you can't declare a dividend the company can't afford.
2. Repay the loan before the CT600 filing deadline
If you repay the full loan within 9 months of the year-end, the S455 tax isn't due. The key date is 9 months and 1 day after the accounting period ends.
3. Pay yourself a bonus
A bonus payment clears the DLA, but remember: it's subject to income tax and National Insurance. Run the numbers to see if the NI cost is less than the S455 tax (usually it is for smaller amounts).
4. Write off the loan
The company can write off the loan, but the written-off amount is treated as a dividend for income tax purposes (taxed at dividend rates in your hands) and is not a deductible expense for Corporation Tax.
What if I'm filing with Taxpipe?
Taxpipe's guided CT600 wizard asks about directors' loans in plain English. You don't need to know box numbers or calculate S455 rates — just answer the questions:
- "Do any directors owe money to the company?"
- "How much is owed at the year-end?"
- "Were any previous loans repaid during this period?"
Taxpipe handles the S455 calculation and fills in Boxes 360–375 automatically.
File your CT600 with Taxpipe — £59, 15 minutes →
Common questions
Does the £15,000 threshold still apply?
No. The £15,000 "de minimis" threshold for S455 tax was removed in 2013. Any overdrawn DLA triggers the tax, regardless of amount.
What about bed and breakfasting?
"Bed and breakfasting" is when a director repays a loan just before the year-end and then borrows it back shortly after. HMRC introduced anti-avoidance rules (the "30-day rule") — if you repay £5,000+ and then re-borrow £5,000+ within 30 days, the repayment is ignored for S455 purposes.
Is S455 tax deductible?
No. S455 tax is not an allowable expense for Corporation Tax purposes. It's a temporary charge that's refunded when the loan is repaid.
What if multiple directors have loans?
Add up all overdrawn DLA balances across all directors/participators. The total goes in Box 360.
Do I need to report the DLA on my personal tax return?
If the loan exceeds £10,000 at any point during the tax year, you may have a benefit-in-kind (BIK) to report. The company would need to report this on form P11D, and you'd pay income tax on the official interest rate benefit.
Summary
| Situation | Tax impact | CT600 box |
|---|---|---|
| DLA in credit (company owes you) | None | N/A |
| DLA overdrawn at year-end | S455 tax at 33.75% | Box 360, 365 |
| Previous loan repaid this period | S455 refund | Box 370, 375 |
| Loan written off | Treated as dividend for income tax | Box 360 (net of write-off) |
Directors' loan accounts are one of the most common sources of unexpected tax bills for small company directors. Keep your DLA in credit at your year-end, and you'll avoid the issue entirely.
Need to file your CT600 and not sure about your directors' loan position? Try Taxpipe's guided wizard — we'll walk you through it step by step.
Related articles:
- Corporation Tax Allowable Expenses — The Complete List
- 10 Common CT600 Mistakes and How to Avoid Them
- Your First Company Tax Return — A New Director's Guide
- Dividends vs Salary: The Tax-Efficient Way to Pay Yourself