In short: A director’s loan account records every pound you take from, or put into, your limited company outside salary, dividends and expenses. If you owe the company money, repay it within nine months and one day of the year end. Otherwise it pays section 455 tax, now 35.75% on loans made from 6 April 2026.
Last reviewed on 7 October 2026 · Written for company directors by our MTA Accountants team
What is a director’s loan account and when does it become overdrawn?
A director’s loan account is the running record of money passing between you and your limited company that is not salary, a dividend or an expense repayment. The law says you must keep one, and the official director’s loans page confirms the year-end balance belongs on the company’s balance sheet.
The rules also reach close family members who receive money from the company. Many owners call it the DLA, or search for “directors loan account”.
Overdrawn: you owe the company
The account is overdrawn when you have taken out more than you have put in. Typical causes include:
- cash withdrawn with no dividend or salary behind it
- personal bills paid from company funds
- a dividend declared in anticipation of profits that never arrived
In credit: the company owes you
The account is in credit when you have paid company costs personally or lent the business cash. No section 455 charge applies.
What is section 455 tax and what rate applies now?
Section 455 tax is a Corporation Tax charge on a close company when a participator, such as a director who owns shares, still owes it money nine months and one day after the company’s year end. The company, not you personally, pays HMRC.
A close company is, in GOV.UK’s words, one controlled by five or fewer participators, or by any number of participators who are directors. That covers most owner-managed limited companies, so assume the rules apply to you.
| Date the loan was made | Section 455 rate |
|---|---|
| From 6 April 2026 | 35.75% |
| 6 April 2022 to 5 April 2026 | 33.75% |
| 6 April 2016 to 5 April 2022 | 32.5% |
The rate follows the dividend upper rate for the tax year in which the loan was made. At Budget 2025 that rate rose from 33.75% to 35.75%, so every new loan taken from 6 April 2026 carries the higher charge. GOV.UK adds that the Corporation Tax online service will reflect the change on 6 April 2027, so ask us how to file in the meantime.
Narrow exceptions exist, such as certain loans to full-time working directors with no material interest in the company, so check before assuming you qualify.
What is the repayment deadline for an overdrawn director’s loan?
You have nine months after the end of the company’s accounting period to clear the balance; if anything is still owed nine months and one day after the year end, section 455 tax falls due.
Here is a worked example with round, illustrative numbers. Your company’s year ends on 31 March 2027, and you owe it £20,000 on that date, all borrowed after 6 April 2026.
| Event | Result |
|---|---|
| Balance owed at 31 March 2027 | £20,000 |
| Repaid by 31 December 2027 | No section 455 tax |
| Still owed on 1 January 2028 | £20,000 x 35.75% = £7,150 due from the company |
| Repaid on 15 February 2028 | Relief on the £7,150 becomes available on 1 January 2029 |
That last line shows why the charge is often called temporary. The company can reclaim the tax once the loan is repaid, written off or released, but not the interest. The claim must be made within four years.
Good planning avoids the problem: try this cash-flow guide for London start-ups, and ask our accounts preparation team for the balance before the year end rather than after.
What is the 30-day bed and breakfasting rule?
The 30-day rule stops you clearing an overdrawn balance on paper and borrowing the money straight back. If you repay a loan of more than £5,000 and take another loan of £5,000 or more within 30 days either side, HMRC treats the original loan as unpaid.
Using the same illustration, suppose you repay the £20,000 on 20 December 2027 and withdraw £20,000 again on 5 January 2028. The repayment is ignored, and section 455 tax of £7,150 is still charged on the original loan. Once you have permanently repaid it, that tax can be reclaimed, but the interest cannot.
For loans above £15,000, the same charge can apply where you arranged another loan when you repaid.
HMRC may also ask you to confirm, through an online tool, that loans were repaid in full and that no others were made in the 30 days either side of key dates, so keep the paper trail.
When does a director’s loan become a benefit in kind?
An overdrawn balance becomes a benefit in kind when you are a shareholder and director and owe the company more than £10,000 at any time in the tax year. The company then reports it on form P11D and pays Class 1A National Insurance on the value of the benefit.
That value is the interest you would have paid at HMRC’s official rate, minus any interest you actually paid. The official rate is 3.75% for 2026/27, the same as in 2025/26.
An illustration: you owe the company an average of £30,000 throughout 2026/27 and pay no interest.
- Taxable benefit: £30,000 x 3.75% = £1,125
- Class 1A for the company at 15%: £168.75
- You report the £1,125 on your Self Assessment return and pay Income Tax on it at your own rate
Are interest-free director’s loans allowed?
Yes, but “interest-free” is what creates the benefit in kind above the £10,000 line. If you pay interest below the official rate, the company records it as income, and the shortfall counts as a benefit for you.
Balances under £10,000 all year need no benefit reporting, although section 455 tax can still apply, and an account never overdrawn in the tax year is outside the benefit rules.
Our payroll and CIS services handle the reporting, and our guide to employer National Insurance at 15% explains the wider cost.
Can you lend money to your own company?
Yes. Your company pays no Corporation Tax on money you lend it, and your account simply shows a credit balance.
If you charge interest, it counts as a business expense for the company and as personal income for you, which you must report on your Self Assessment return. The company pays you the interest after deducting Income Tax at the basic rate of 20%, then reports and pays that tax to HMRC every quarter on form CT61.
Either way, record the terms in writing. Our business start-up services include setting this up correctly from day one.
Ways to repay or clear an overdrawn balance
The cleanest fix is to put money back. GOV.UK’s guidance lists the accepted repayment routes, so pick the one that suits the company.
- Pay cash into the company bank account. This is the simplest route and leaves a clear audit trail.
- Credit the account with a dividend. This only works if the company has enough retained profits, and the dividend is taxable on you personally.
- Credit the account with salary or a bonus. This runs through payroll, so PAYE and National Insurance apply.
- Write the loan off. The company stops pursuing it, but there is a personal cost, covered next.
What happens if the loan is written off?
A written-off or released loan is treated as income for you. The company must deduct Class 1 National Insurance through payroll, and you pay Income Tax on the amount through Self Assessment. This applies even if the company goes into liquidation. Compare a write-off with a dividend before deciding.
How should you record a director’s loan account and report it to HMRC?
Record every movement as it happens, in a separate account in your bookkeeping software, and reconcile it to the bank each month. Xero, QuickBooks and Sage all support this when the account is set up correctly.
If loans to a participator were not repaid within the accounting period, the company completes supplementary page CT600A with its Company Tax Return, as set out in HMRC’s CT600A guidance. It lists each participator’s balance, totals the tax chargeable and claims relief for repayments.
If you reclaim within two years of the end of the period when the loan was taken, use CT600A. After that, use form L2P. Our tax services team files both, and our cloud bookkeeping support keeps the ledger tidy all year. Still choosing a structure? Compare trading alone against incorporating.
Common mistakes to avoid
- Treating company money as your own. The company is a separate legal person, so personal spending needs recording.
- Reviewing the account too late. By the time accounts are drafted, the nine-month clock is already running.
- Repaying and re-borrowing. It triggers the 30-day rule and still leaves section 455 tax to pay.
- Using last year’s rate. Loans from 6 April 2026 attract 35.75%, not 33.75%.
- Forgetting the benefit in kind. A balance above £10,000 needs a P11D and Class 1A, even when no section 455 tax is due.
- Skipping paperwork. Company law also has rules on lending to directors, including shareholder approval in some cases.
Director’s loan account help from our London office
Our office is at International House, 66 Lavender Hill, London SW11 5RQ. We support owner-managed companies throughout England, meeting clients face to face or working entirely online, and the rules and deadlines are identical wherever you are based.
Local pages cover Merton, Sutton, Croydon and Ealing, and our areas we serve page shows the rest. Learn about our practice, browse our services or see who we help.
For ongoing visibility, regular management accounts flag an overdrawn balance well before the year end. More guides are on MTA Insights.
Frequently Asked Questions
How much tax do I pay on an overdrawn director’s loan account?
The company pays section 455 tax of 35.75% of any balance still owed nine months and one day after its year end, for loans made from 6 April 2026. On £10,000 that is £3,575. You may also face a benefit-in-kind charge if you owed more than £10,000 during the year.
Can a director’s loan account stay overdrawn for more than nine months?
Yes, legally it can, but it becomes expensive. Once the balance is still outstanding nine months and one day after the year end, the company must pay section 455 tax, and interest runs on any late payment. The tax is refundable after repayment, though the interest is not.
Is there a limit on how much I can borrow from my company?
There is no single tax limit, but £10,000 is the trigger for benefit-in-kind reporting, and section 455 tax can apply to smaller sums too. Company law may also require shareholder approval, and the company needs spare cash to lend, so speak to us before borrowing large sums.
Do I have to pay interest on a director’s loan?
No, interest is optional. However, a loan above £10,000 charged at less than HMRC’s official rate of 3.75% creates a taxable benefit for you, and any interest you do pay counts as income for the company. Many directors charge the official rate to avoid that calculation.
What happens if my company writes off the loan?
The amount is treated as income for you. The company deducts Class 1 National Insurance through payroll, and you declare the sum on your Self Assessment return and pay Income Tax on it. The company can usually reclaim any section 455 tax it paid on that loan.
Can I repay my overdrawn balance with a dividend?
Yes, provided the company has enough distributable profits. Crediting a dividend to your account clears the debt, but you pay dividend tax on it personally. A dividend without sufficient reserves is unlawful and could create another loan, so check the latest accounts first, ideally with us before you declare it.
What is a CT600A and do I need one?
CT600A is the supplementary page of the Company Tax Return that reports loans made to participators. You need one if the company made loans that were not repaid within the accounting period. It lists each balance, calculates section 455 tax and claims relief for repayments, so your accountant normally prepares it alongside the return.
Can I get section 455 tax back from HMRC?
Yes. The company can reclaim it after the loan is repaid, written off or released, but not any interest charged. Relief is due nine months and one day after the end of the period in which the repayment occurred, and the claim must be made within four years.
Is a credit balance on my director’s loan account taxable?
Money you have lent to the company is not taxed as company profit, and the company pays no Corporation Tax on it. Only interest you charge is taxable, as personal income. Without an agreed interest rate, a credit balance simply means the company owes you money.
Do loans to my family count as director’s loans?
Often, yes. HMRC treats money taken by close family members in the same way as money taken by you. Relatives and trustees of connected settlements can count as associates of a participator, so record such payments carefully and ask us if you are unsure how a payment will be treated.
An overdrawn balance rarely fixes itself. If you would like a second pair of eyes on your numbers, Book a Consultation to talk through your position. The first conversation is free and non-advisory.
MTA Accountants, International House, 66 Lavender Hill, London SW11 5RQ. Telephone 020 3488 8635, email office@mtaaccountants.co.uk. Our hours: Monday to Friday 8am to 8pm; Saturdays 9am to 1pm.
This article is a general guide based on the rules we understood to apply on 7 October 2026. It cannot reflect your own circumstances, so confirm your position with a qualified adviser before moving money in or out of your company.