The director's loan account

A director's loan account records money you take from or lend to your company outside salary, dividends and expenses. If you owe the company at the year end and have not repaid within 9 months and 1 day, the company pays 33.75% corporation tax on the balance — refundable once repaid. Owe more than £10,000 at any point and it is also a benefit in kind.

Most small company directors have one whether they meant to or not: it is where every payment that is not salary, dividend or expense ends up. Kept deliberately it is a useful tool. Discovered at the year end it is an expensive surprise.

How directors end up overdrawn

Rarely by decision. The company pays for something personal, or you take money during the year expecting to declare a dividend later and the profit does not arrive. Each transaction is small; the balance is not.

The distinction that matters: a dividend requires distributable profit and paperwork. Money taken without either is not a dividend, whatever it was intended to be — it is a loan, and it lands in this account.

The S455 charge

Owe the company money at the year end and fail to repay within 9 months and 1 day — the same deadline as corporation tax itself — and the company pays33.75% of the outstanding balance.

It is a deposit rather than a penalty: Refundable once the loan is repaid — but not until 9 months and 1 day after the end of the accounting period in which it was repaid. Which means a £30,000 overdrawn balance costs the company £10,125 in cash it will eventually get back, and the wait is long enough to matter.

The £10,000 line

Separately, if the balance exceeds £10,000 at any point in the year, the loan is a benefit in kind. That means a P11D, Class 1A National Insurance for the company, and a taxable benefit for you — unless you pay interest to the company at HMRC's official rate, which is often the cheaper route.

Note "at any point": a balance that peaked at £12,000 in June and was £3,000 at the year end still crossed the line.

Why repay-and-re-borrow does not work

The obvious move — clear the balance just before the nine-month deadline, take it out again afterwards — is the exact behaviour the anti-avoidance rules were written for. Repayments followed by fresh borrowing within a short window are matched against each other and treated as if nothing was repaid.

The ways out

• Repay it — cleanest, if the money exists personally.
• Declare a dividend to clear the balance, if there is distributable profit. Taxed on you at dividend rates, but it ends the S455 exposure.
• Vote a bonus or salary — deductible for the company, but carries income tax and National Insurance.
• Write it off — possible, and taxed on you broadly as a distribution, with National Insurance consequences. Rarely the cheapest, occasionally the only option.
• Leave it and pay the S455 — a deliberate choice sometimes, if the cash is better used in the business than in the refund queue.

Which is right depends on the numbers and on when you need the money personally. The one option that is never right is finding out about the balance when the accounts are prepared, eight months after the year end, with four weeks left to act.

Figures are for the tax year shown and change every April. They are general information, not advice — we check the current position for your circumstances before anything is filed.

Reviewed 19 October 2026.

Part of our work on company and director tax — if you want someone to take it off your hands, start with our how to pay yourself from a limited company page.