Director’s Loan Account 2026/27 | S455 & Repayment

A director's loan account (DLA) records the money flowing between you and your company — what you put in and what you take out. When you draw more than you have contributed, the account goes overdrawn. If the loan is still outstanding 9 months and 1 day after the end of the Corporation Tax accounting period, the company generally pays the S455 charge at 33.75% on the outstanding amount. The £10,000 figure belongs to separate beneficial-loan reporting rules; it is not a general S455 threshold.

The rules also reach loans to your spouse, children, parents and siblings, and cheap loans trigger benefit-in-kind reporting. Compare the tax-efficient ways to extract profits with the Dividend Tax Calculator→, and model salary against dividends with the Salary vs Dividend Calculator→.

When a DLA Becomes Overdrawn

The account goes overdrawn when drawings exceed what you have put in. Common triggers: drawing money before dividends are declared, the company paying your personal tax bill or credit card, personal expenses run through the business, and shareholder loans. If the company owes you money, the account is in credit and there is no tax issue — the exposure only runs one way.

The S455 Charge in Detail

For 2026/27 the S455 rate is 33.75%. If the loan remains outstanding past the statutory deadline, the charge is calculated on the outstanding amount; the £10,000 beneficial-loan exemption is not a general S455 de minimis. The company pays the charge with the Company Tax Return process and can normally reclaim it after the loan is repaid, written off or released, subject to the statutory timing rules.

Example. Emma's company has a 31 March year end and her DLA is overdrawn £50,000. The statutory deadline is 1 January (9 months and 1 day after the end of the accounting period). If the loan remains outstanding then, the company may owe £16,875 S455, even though she drew the money months earlier.

Cheap Loans and Benefit-in-Kind

If the DLA is overdrawn and you pay no or insufficient interest, a beneficial-loan benefit may arise. HMRC's official rate is 3.75% from 6 April 2026; use the current official-rate table for the relevant period rather than assuming that one rate applies forever. The £10,000 exemption applies where the combined outstanding beneficial loans do not exceed £10,000 throughout the tax year, subject to the detailed conditions. For a shareholder-director loan above £10,000, HMRC's director-loan guidance says the company must treat it as a benefit in kind and deduct Class 1 National Insurance through payroll. Do not substitute the general Class 1A benefits rule without checking the specific director-loan treatment. Paying sufficient interest can reduce or remove the taxable benefit.

Repayment Strategies

• Declare a dividend if the company has distributable reserves — the dividend credits the DLA, but you pay dividend tax at 10.75%, 35.75% or 39.35% in 2026/27 on the amount above the £500 allowance.
• Run a salary or bonus through payroll — the net amount clears the overdraft, but employer NI at the applicable 2026/27 rate makes this a costlier route.
• Repay in cash from personal funds — the simplest route, with no tax charge on the repayment itself, but watch the statutory anti-avoidance rules and HMRC's wider evidence test for "bed and breakfasting".
• Transfer a personal asset to the company at market value — effective, but the transfer can itself be a CGT disposal.

Real Worked Examples

Example 1 — repaid in time. Sarah takes £40,000 from her company on 1 June 2026. Year end is 30 June 2026, so the 9-month-and-1-day deadline is 1 April 2027. She repays £40,000 on 1 March 2027: no S455 charge for that period, although the beneficial-loan rules still need checking.

Example 2 — repaid late. Mark takes £100,000 with a 31 December 2026 year end. The statutory deadline is 1 October 2027 (9 months and 1 day after the period end). If the loan is still outstanding, the company may owe S455 of £33,750. If Mark repays on 30 June 2028, the company can claim relief under the statutory timing rules; it has financed the charge in the meantime.

Reporting and the CT600

The S455 charge is reported on the Company Tax Return with the loan details on form CT600A. When the loan is eventually repaid, written off or released, the company can claim relief after the statutory due date for that accounting period; the exact repayment and claim timing should be checked against HMRC's current guidance. Keep a running DLA ledger with dates, so the company accounts, the CT600 and your personal records all tell the same story.

Genuine Repayment and Bed-and-Breakfasting

Repaying the ledger balance on a date is not automatically enough if the company immediately lends the money back. HMRC describes bed-and-breakfasting as a temporary repayment followed by withdrawal shortly afterwards, often around the accounting-period end or the 9-month trigger date. Its guidance says the facts must be established and that book entries should reflect genuine underlying transactions. A company should therefore retain bank statements, the loan ledger, board minutes, the source of repayment funds and evidence that the company could genuinely use the money after repayment.

There are also specific statutory rules. If the loan exceeds £5,000 and another loan of at least £5,000 is taken up to 30 days before or after repayment, the charge can be based on the original loan. If the loan exceeds £15,000 and another loan is arranged when the original is repaid, the same anti-avoidance outcome can apply. These tests are not permission to use a self-selected “safe gap”; a longer interval does not turn a circular arrangement into a genuine repayment if the facts show that the funds were only temporarily returned. Review every connected loan, not only the balance on the main DLA.

Reclaiming S455 After Repayment

If S455 has been paid and the loan is later repaid, written off or released, the company can reclaim the Corporation Tax, but not the interest charged on it. Relief is not available immediately: HMRC says the company must claim after 9 months and 1 day after the end of the accounting period in which the loan was repaid, written off or released. The claim must normally be made within four years. A CT600A route may be available when the reclaim is within two years of the accounting period in which the loan was taken out; form L2P is used in the other cases described by HMRC, including later claims. Record the actual repayment date and the relevant accounting period separately, because confusing those two dates can produce an early or missed claim.

Write-Off, Release and Insolvency

A write-off or release is not the same as a cash repayment. HMRC's director-loan guidance says that, where the loan is written off or released, including on liquidation, the company deducts Class 1 National Insurance through payroll and the director pays Income Tax through Self Assessment. The amount and the individual's marginal position need to be calculated from the actual facts; “up to 45%” is not a universal rate. Any earlier S455 charge has its own reclaim timetable, so payroll treatment and Corporation Tax relief should be checked as two separate workstreams.

Before a solvent strike-off or liquidation, reconcile the DLA and discuss it with the accountant or insolvency practitioner. A liquidator can seek recovery from the director, and an unresolved overdrawn balance can affect creditors and the company's final filings. Do not use a last-minute dividend or journal entry unless the company has distributable reserves, the decision is properly authorised and the entries represent a real transaction.

Directors' Responsibilities and HMRC Enquiries

An overdrawn DLA can attract HMRC scrutiny because the same ledger may contain drawings, personal expenses, dividends, salary and repayments. HMRC can examine whether the entries reflect the stated transactions and whether a repayment was genuine. Directors should reconcile the DLA monthly, identify connected-person balances, minute material drawings, declare dividends formally with board minutes and vouchers before crediting them, and avoid using the company account as a personal bank account. If the company is VAT-registered, personal spending through the business can also create separate bookkeeping and VAT errors. A clear ledger does not remove the tax rules, but it makes the deadline, benefit and reclaim calculations auditable.

Liquidation and Write-Off Risks

If the company cannot collect the loan, a write-off or release is dealt with through the payroll and Self Assessment rules described above rather than being treated as a tax-free extraction. On liquidation, an outstanding overdrawn DLA is a debt the liquidator may seek to collect, and any earlier S455 charge must be considered separately under the reclaim rules. Directors of insolvent companies should obtain advice before winding up and should not assume that a journal entry removes the debt.

Frequently Asked Questions

Compare extraction routes with the Dividend Tax Calculator→ and the Salary vs Dividend Calculator→. Pair this guide with Dividend vs Salary 2026/27 and Dividend Allowance 2026/27 for the full profit-extraction picture.

Official sources

• GOV.UK: Director's loans — if you owe your company money
• GOV.UK: Expenses and benefits — loans provided to employees
• HMRC: Beneficial loan arrangements — official rates
• HMRC Enquiry Manual EM8565: Bed and breakfasting
• GOV.UK: Rates and thresholds for employers 2026 to 2027