Quick answer
If you owe your company money through an overdrawn director’s loan account at the end of its accounting period, the company must pay a section 455 charge of 33.75% unless the loan is repaid within nine months and one day. The tax is refundable once the loan is cleared.
Updated October 2026 · Figures based on 2025/26 rates
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How an overdrawn loan arises
Taking money from the company that is not salary, dividend or expense repayment creates a loan from the company to you.
The section 455 charge
Outstanding loans at the year end trigger a charge at 33.75%, payable nine months and one day after the period end. It is repayable when the loan is repaid or written off.
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Benefit in kind rules
Loans over £10,000 may also create a taxable benefit and the company may owe Class 1A National Insurance, unless interest at the official rate is paid.
Avoiding problems
Repay before the deadline, avoid repaying then re-borrowing (bed and breakfasting rules), and keep clear records.
How a director’s loan account works
A director’s loan account (DLA) is simply a record of money moving between you and your limited company that is not salary, dividends or an expense repayment. If you take out more than you have put in, the account is overdrawn, which means the company has effectively lent you money. If the company owes you, the account is in credit, which is generally not a tax problem. The tax rules bite when the account is overdrawn at the company’s year end. Section 455 tax is a charge on the company, not on you personally, but it is usually your money that ends up funding it, so the practical effect lands on the director.
The charge is set by reference to the higher dividend rate. It was 33.75% for loans made before 6 April 2026, and the rate for newer loans follows the increase in dividend rates, so check current HMRC guidance for the figure that applies to your loan. Section 455 tax is due nine months and one day after the end of the accounting period. If the loan is repaid, or written off through a properly processed dividend or salary, before that date, no section 455 charge arises. If you repay it later, you can reclaim the tax, but not until nine months and one day after the end of the accounting period in which the repayment was made.
Worked example: a £30,000 overdrawn account
This is an illustrative example. A director’s company has a year end of 31 March 2026. At that date the director owes the company £30,000, and no repayment is made within nine months and one day, which is 1 January 2027.
| Item | Working | Amount |
|---|---|---|
| Loan outstanding | Overdrawn at year end | £30,000 |
| Section 455 tax | £30,000 x 33.75% | £10,125 |
| Taxable benefit (director) | £30,000 x assumed official rate of 3.75% | £1,125 |
| Income tax on benefit | £1,125 x 40% (higher-rate director) | £450 |
The assumed 3.75% official rate is for illustration only, so check the current rate. The benefit arises because the loan is above £10,000 and carries no interest, and it is reported on form P11D. If the director repays the £30,000 in full the following year, the £10,125 can be reclaimed, but only after the relevant waiting date. Meanwhile the company has been out of pocket for well over a year. Repaying before the due date would have avoided the section 455 charge altogether.
Rules to watch
The 30-day rule
If you repay £5,000 or more and withdraw similar amounts again within 30 days, HMRC can match the two and treat the repayment as not having happened. This stops short-term repayments being used to dodge the charge, so plan any clearance of the account properly rather than moving money back and forth.
Written-off loans
If the company releases or writes off the loan, the amount is generally treated as a distribution for the director and taxed as a dividend, reported on your Self Assessment return. The company gets no deduction. Our guides to dividend tax rates and director salary versus dividends will help you work out the cost.
Common mistakes
- Treating money taken from the company as free of tax because it is “just a loan”.
- Ignoring the nine months and one day deadline for the section 455 payment.
- Clearing the balance with a dividend when the company does not have enough distributable profit.
- Not reporting the benefit in kind on a loan over £10,000. See director benefits in kind and P11D.
- Using personal money for company expenses without recording it, which hides what the company really owes.
- Missing the Self Assessment and company filing dates, which are covered in our guide to director tax return deadlines and penalties.
Practical checklist
- Reconcile the DLA to the bank statements each month.
- Check the balance before the company year end, and decide whether to repay, declare a dividend or accept the charge.
- Diarise the section 455 payment date if the account will be overdrawn.
- Check whether the loan exceeds £10,000 and whether a P11D is needed.
- Keep board minutes and dividend paperwork.
- Review other ways of taking money in our guide to tax-efficient ways to take money from a limited company.
How SATR can help
Our qualified UK accountants can review your DLA, report the right figures on your personal return and file it online, from a fixed fee from £199 + VAT. See our Self Assessment service for company directors.
This is general information, not personal tax advice.
Frequently asked questions
Is it better to take a dividend?
Often yes, if profits are available, because a dividend clears the loan without section 455 tax.
Does it appear on my Self Assessment?
Yes. Loans and any benefit in kind are reported on your return.
Can a director’s loan be interest-free?
Yes, but if the balance goes above £10,000 at any point in the tax year, the lack of interest is usually a taxable benefit in kind. Check current HMRC guidance for the official rate.
Does section 455 tax apply if the company owes me money?
No. It only applies when the director owes the company money at the year end. A credit balance is simply a debt the company owes you.
How do I get section 455 tax back?
After you repay the loan, the company claims the tax back through its corporation tax return process. The refund is generally only available nine months and one day after the end of the accounting period in which the loan was repaid.
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The Bottom Line
An overdrawn director’s loan account is everyday company borrowing with surprisingly sharp teeth. Leave a balance outstanding more than nine months and one day after the year end and your company pays section 455 tax at 33.75%, while loans over £10,000 can also create a taxable benefit in kind, income tax and Class 1A National Insurance. Reconcile the account monthly, decide before the year end whether to repay, clear it with a dividend or pay the charge, and most directors never lose a penny to section 455.
If you would rather a specialist handled it, our fixed-fee Self Assessment service starts from £199 + VAT — done for you online by qualified UK accountants. See our Self Assessment for company directors service, or get your fixed-fee quote today.
