How a director's loan account works and how it is taxed

This guide explains what a director's loan account records and how the company and the director are taxed when a director owes the company money at the year end.
By Buzz Accounting · Updated 16 September 2026

What a director's loan account is

A director's loan account is the record a company keeps of money that moves between the company and a director, other than salary, dividends and repayments of business expenses. Money you take out for yourself, and personal bills the company pays for you, are recorded on one side. Money you lend the company, and company costs you pay from your own pocket, are recorded on the other. The balance shows who owes whom on any date, and the year-end balance goes on the company's balance sheet.

When the company owes you money, the account is in credit. When you owe the company money, the account is overdrawn, and three sets of tax rules can apply. The company may have to pay a temporary tax of 35.75% on the amount you owe. You may be taxed on the interest you are not paying. If the company writes the loan off, the amount written off is taxed as your income.

An overdrawn account can build up without anyone deciding to borrow. A founder pays a personal bill from the business account, or makes regular transfers before anyone has checked whether the company has profits to pay dividends from. This guide explains each rule at 2026/27 rates and finishes with a worked example of an account that is overdrawn at the year end.

What this guide covers

What the account records, in credit and overdrawn
The 35.75% charge, repayment deadlines and reclaiming it
Borrowing again after repaying, interest and benefits in kind
Writing a loan off, with a worked example

What goes into the account

Every movement of money between you and the company that is not salary, a dividend or an expense claim belongs in the account. These increase the amount you owe the company:

transfers from the company's bank account to you
personal spending on a company card
personal bills the company pays on your behalf

These increase the amount the company owes you:

money you lend the company, other than money paid for shares
business costs you pay personally and have not yet been repaid
salary or dividends that have been properly declared and credited to the account but not yet paid out

The notes to the company's accounts must give details of any advances to directors, including the amount, the interest rate, the main conditions and any amounts repaid, written off or waived during the year (Companies Act 2006, section 413). Company law also requires the shareholders to approve a loan to a director by resolution, unless the director's loans from the company total £10,000 or less (section 207). A sole shareholder can pass the resolution in writing.

When the account is in credit

If the company owes you money, drawing the balance does not create a tax charge, because the company is paying back money it owes you. The company pays no corporation tax on money you lend it.

You can charge the company interest on a loan you have made to it. The interest is a business expense for the company and personal income for you, which you report on your Self Assessment tax return. The company must deduct income tax at the basic rate of 20% before paying you, and report and pay that tax to HMRC every quarter on form CT61 (HMRC guidance on lending money to your company). Each CT61 return is due within 14 days of the end of the calendar quarter in which the interest was paid. Interest owed to a shareholder that is still unpaid 12 months after the end of the accounting period is only deductible when it is paid (Corporation Tax Act 2009, section 373).

When the account is overdrawn

The company tax charge described below applies to close companies. A company is close if it is controlled by five or fewer shareholders, or by shareholders who are directors (Corporation Tax Act 2010, section 439), so a company owned by one to five founders meets the test. The charge covers loans to a shareholder, and to an associate of a shareholder such as a spouse, close relative or business partner.

A loan to a director or employee is outside the charge if the borrower works full-time for the company, holds no more than 5% of it including holdings of their associates, and owes no more than £15,000 in total (section 456).

The tax charge on loans not repaid within nine months

If a close company lends money to a shareholder and the loan is still outstanding nine months after the end of the company's accounting period, the company must pay a tax charge on the outstanding amount. Accountants call this the S455 charge, after section 455 of the Corporation Tax Act 2010, which creates it.

The rate follows the higher rate of dividend tax for the tax year in which the loan is made. For loans made on or after 6 April 2026 the rate is 35.75%. Loans made from 6 April 2022 to 5 April 2026 are charged at 33.75% (HMRC Company Taxation Manual, CTM61505). The charge applies whether or not the company is making a profit.

The charge is worked out on loans made during the accounting period that are still outstanding when the tax falls due. The tax is due nine months and one day after the end of the accounting period, the same day as corporation tax for a company that does not pay in instalments, and it is reported on the supplementary page CT600A with the company tax return. Each loan is charged once, so a balance charged in an earlier period is not charged again in later periods. If the S455 tax is paid late, HMRC charges interest on it until the tax is paid or the loan is repaid.

No S455 is payable on a loan repaid within nine months of the year end, whether the repayment is cash from your own funds, a bonus paid through payroll or a dividend credited to the account. A bonus or dividend used this way is taxed on you in the usual way.

Reclaiming the tax after the loan is repaid

Once a loan that has been charged is repaid, released or written off, the company can claim the S455 tax back. HMRC will not repay it until nine months and one day after the end of the accounting period in which the repayment happened (section 458). A repayment made just before a year end therefore gets the refund a full year sooner than one made just after it. Interest the company paid on late S455 tax is not refunded.

The claim must be made within four years of the end of the financial year in which the loan is repaid. For corporation tax, financial years run from 1 April to 31 March. Within two years of the end of the accounting period in which the loan was made, the claim can go on form CT600A in the return for that period or in an online amendment to it. Other claims use form L2P (HMRC guidance on owing your company money).

Repaying a loan and borrowing it again

Repaying a loan before the charge falls due and then drawing the money out again does not avoid S455. Two rules treat the repayment as repaying the new loan instead, which leaves the original loan outstanding (section 464ZA).

The 30-day rule

If, within any 30-day period, you repay £5,000 or more and the company lends you or an associate £5,000 or more in a later accounting period than the one in which the repaid loan was made, the repayment is matched to the new loan, up to the amount of the new loan. It makes no difference whether the repayment comes before or after the year end. HMRC's own example is a £6,000 loan repaid two days before the year end, with £6,000 borrowed again on the third day of the next period. The whole £6,000 stays chargeable to S455 (CTM61630).

The arrangements rule

If you owed £15,000 or more immediately before a repayment, and at the time of the repayment arrangements had already been made to borrow again, new loans of £5,000 or more made under those arrangements are matched with the repayment in the same way. This rule has no time limit. HMRC gives arrangements a wide meaning, and a plan made by the director alone can count (CTM61635).

Neither rule applies where the repayment itself is taxed as your income, such as a dividend, or a bonus that has been through payroll, credited straight to the loan account. A dividend paid out in cash and then paid back in does not count as that kind of repayment (CTM61642).

Benefit in kind on loans above £10,000

A separate rule taxes the director personally. If the total you owe the company goes above £10,000 at any time in the tax year, and you pay less interest than HMRC's official rate, the interest you have not paid is treated as a taxable benefit of your employment, known as a benefit in kind (Income Tax (Earnings and Pensions) Act 2003, section 180). The official rate for 2026/27 is 3.75%, the same as for 2025/26 (HMRC official rates of interest).

The normal way to value the benefit is to take the average of the balance at the start and end of the tax year, or on the dates the loan was made or repaid, multiply it by the official rate, and scale it by the number of whole months the loan was outstanding in the year. For this purpose each month starts on the 6th. You or HMRC can ask for a day-by-day calculation instead, which is more accurate when the balance changes a lot during the year.

The company reports the benefit on form P11D after the end of the tax year and pays employer's Class 1A National Insurance on it, at 15% for 2026/27. You report the benefit on your Self Assessment return and pay income tax on it at your own rate (HMRC guidance on loans to employees).

Charging interest on the loan

If you pay the company interest at the official rate or more, there is no benefit in kind. If you pay a lower rate, only the difference between the official rate and the rate you pay is taxed. The interest you pay is income of the company and is taxed as part of its profits.

Whether paying interest costs less than the tax on the benefit depends on your tax rate. On a £24,000 balance outstanding for a whole tax year, interest at 3.75% is £900. A higher-rate taxpayer outside Scotland who pays no interest pays income tax of £900 × 40% = £360 on the benefit instead, and the company pays Class 1A National Insurance of £900 × 15% = £135. Paying the interest moves £900 from you to the company, where it is taxed as company income.

Writing a loan off

A company can formally release a director from repaying a loan, which is usually called writing it off. For a shareholder in a close company, three things follow.

You are taxed on the amount written off as dividend income, at 10.75%, 35.75% or 39.35% for 2026/27 depending on your tax band, through your Self Assessment return (Income Tax Act 2007, section 19).
Where you are also a director or employee, HMRC expects Class 1 National Insurance to be paid on the amount written off through the company's payroll (CTM61660).
The company cannot deduct the amount written off from its profits for corporation tax (Corporation Tax Act 2009, section 321A). It can reclaim any S455 tax it paid on the loan, on the same timetable as for a repayment.

The amount written off must also be shown in the notes to the accounts. Before agreeing a write-off, compare its total cost with clearing the loan through a dividend or a bonus.

Keeping the account under control

Record every personal payment from the company when it happens, and reconcile the loan account each month.
Pay yourself a salary through payroll and declare dividends with board minutes when the company has profits available, so money you take out is recorded as pay or dividends from the start. Our guide to paying yourself as a founder covers the usual mix.
Get shareholder approval before any loan that takes your total borrowing above £10,000.
Check the balance before the year end, and plan any repayment to land within nine months of it.
Before clearing the account with a dividend, confirm that the company has enough profits available for distribution. Our guide to your company's first year end explains how to pay dividends properly.

Worked example of an overdrawn account at the year end

The figures are illustrative. A founder owns all the shares in a company with a 31 December year end. On 1 June 2026 the founder transfers £24,000 from the company to fund a house deposit, after signing a written shareholder resolution approving the loan. The founder repays none of it by 31 December 2026, so the loan account is overdrawn by £24,000 at the year end.

The S455 charge

The loan was made after 6 April 2026, so the rate is 35.75%. If nothing were repaid, the company would owe £24,000 × 35.75% = £8,580 on 1 October 2027, nine months and one day after the year end.

On 15 August 2027 the founder repays £10,000 from personal savings and does not borrow again. The repayment is within nine months of the year end, so the charge falls to £14,000 × 35.75% = £5,005, due on 1 October 2027.

Suppose instead the founder had drawn £8,000 again on 1 September 2027, 17 days after the repayment. The 30-day rule would match £8,000 of the repayment to the new loan. Only £2,000 would count against the original loan, leaving £22,000 outstanding and a charge of £22,000 × 35.75% = £7,865.

Clearing the balance and reclaiming the tax

On 18 December 2027 the company, which has enough profits available for distribution, declares a dividend of £14,000 and credits it to the loan account, clearing the balance. The founder pays dividend tax on it through Self Assessment. The repayment falls in the accounting period ending 31 December 2027, so the company can reclaim the £5,005 from 1 October 2028. Had the dividend been declared on 5 January 2028, the reclaim would have waited until 1 October 2029.

The benefit in kind

The balance was above £10,000 during 2026/27 and no interest was charged. The loan was outstanding from 1 June 2026 to 5 April 2027, which is 10 whole months counting from the 6th of each month, and the balance was £24,000 when the loan was made and on 5 April 2027.

Benefit: £24,000 × 3.75% × 10/12 = £750
Income tax for a higher-rate taxpayer outside Scotland: £750 × 40% = £300
Class 1A National Insurance for the company: £750 × 15% = £112.50

The balance stayed above £10,000 until 18 December 2027, so a further benefit arises for 2027/28, valued at the official rate for that year.

Get the next guide by email

Leave your name and email address and we will send you the next guide when it is published, with tax tips for startups. You can unsubscribe at any time.

Common questions

Is it legal for a director to borrow money from their company?

Yes, a company can lend money to its directors, but a loan that takes a director's total borrowing from the company above £10,000 needs approval by a resolution of the shareholders. The loan must also be disclosed in the notes to the company's accounts. If the director is a shareholder in a close company, the company may have to pay the S455 charge on the loan, and the director may be taxed on a benefit in kind if the balance goes above £10,000.

What is the S455 tax rate on a director's loan?

The S455 rate is 35.75% for loans made on or after 6 April 2026, and 33.75% for loans made from 6 April 2022 to 5 April 2026. The rate follows the higher rate of dividend tax for the tax year in which the loan is made. The company pays it on any part of the loan still outstanding nine months after the end of its accounting period, and the tax is due nine months and one day after that year end. The company can reclaim it once the loan is repaid.

When can the company reclaim S455 tax?

The company can reclaim S455 tax from nine months and one day after the end of the accounting period in which the loan is repaid, released or written off. A loan repaid a few days before the company's year end therefore brings the refund forward by a full year compared with a repayment made a few days after it. The claim must be made within four years of the end of the financial year in which the loan is repaid, on form CT600A or form L2P depending on the timing.

Can I repay my director's loan with a dividend?

Yes, a dividend credited to your loan account repays the loan, provided the company has enough profits available for distribution and the dividend is declared at a directors' meeting with minutes and a dividend voucher. Other shareholders will usually receive their share of the dividend too. You pay dividend tax on it at your usual rates. A dividend credited straight to the loan account is outside the rules that match repayments with new borrowing. A dividend paid out in cash and then paid back into the company counts as an ordinary repayment, so those rules can apply to it.

Do I pay tax on an interest-free loan from my company?

You pay tax on an interest-free loan only if the total you owe the company goes above £10,000 at any time in the tax year. When it does, the interest you would have paid at HMRC's official rate, which is 3.75% for 2026/27, is treated as a taxable benefit. You pay income tax on that amount at your own rate, and the company reports it on form P11D and pays Class 1A National Insurance on it at 15%. Paying interest at the official rate or more removes the benefit.

What happens if my company writes off my director's loan?

The amount written off is taxed on you as dividend income, at 10.75%, 35.75% or 39.35% for 2026/27 depending on your tax band. HMRC also expects Class 1 National Insurance to be paid through payroll on the amount written off where you are a director or employee. The company cannot deduct the write-off from its profits for corporation tax. It can reclaim any S455 tax it paid on the loan from nine months and one day after the end of the accounting period in which the write-off happens.