Any time you take money out of your company that isn't salary, a legitimate expense, or a properly declared dividend, it is recorded as a loan to you — in your director's loan account (DLA). Small, short-term loans are fine and common. But an overdrawn DLA left unpaid triggers a 33.75% corporation tax charge under section 455, plus possible benefit-in-kind tax. This guide explains the rules so you don't get an unexpected bill.
Director's Loan Account Key Rules 2026
- s.455 charge: 33.75% of any loan unpaid 9 months + 1 day after year end
- Refundable: s.455 is repaid to the company once you clear the loan
- Benefit in kind: applies if loan exceeds £10,000 at any point (interest-free)
- Official rate of interest: used to value the benefit if under-charged
- Bed & breakfasting: repay-and-redraw within 30 days is blocked by HMRC
- Loan to you: keep clear board records and repay from dividends or salary
What is a director's loan account?
A director's loan account is simply the running record of money owed between you and your company that isn't wages or dividends. It can be overdrawn (you owe the company) or in credit (the company owes you — for example, if you paid start-up costs personally or lent the company funds).
A DLA in credit is useful: you can withdraw that money tax-free at any time because it's your own money being repaid. The problems arise when the account is overdrawn.
The section 455 tax charge
If your loan account is overdrawn at the company's year end and still not repaid nine months and one day later, the company must pay a section 455 charge of 33.75% of the outstanding balance to HMRC. This is not lost forever — HMRC refunds it once the loan is repaid or written off, but the refund comes nine months after the year end in which you repay, so cash can be tied up for a long time.
The practical fix is to clear the balance within the nine-month window, usually by declaring a dividend or bonus and offsetting it against the loan.
Benefit in kind over £10,000
If your overdrawn loan exceeds £10,000 at any point in the tax year and you pay no interest (or below HMRC's official rate), the difference is a taxable benefit in kind. The company reports it on form P11D and pays Class 1A National Insurance; you pay income tax on the benefit.
You can avoid the BIK by charging yourself interest at HMRC's official rate — the company then has a small taxable income, but you sidestep the P11D benefit.
Bed and breakfasting rules
HMRC blocks the old trick of repaying a loan just before year end and re-borrowing shortly after. Under the 30-day rule, if you repay £5,000 or more and redraw a similar amount within 30 days, the repayment is matched against the new loan and the s.455 charge still applies. A separate “intentions and arrangements” rule catches larger amounts even beyond 30 days.
The safe approach is to genuinely clear the loan — from a dividend, salary, or personal funds you don't immediately draw back.
How to record and manage a DLA
Keep a simple running ledger of every non-salary, non-dividend transaction between you and the company, with dates and reasons. Reconcile it at year end so your accountant can report the closing balance correctly on the corporation tax return (CT600A).
Good habits: don't let the balance drift, repay within the nine-month window, and if you regularly need cash, set up a formal salary and dividend strategy instead of relying on the loan account.
Start your UK company the right way
Incorporate with 1st Formations and set up clean director records from day one — fast online formation from £12.99.
View company packagesFAQ
What is the section 455 tax charge?
It is a corporation tax charge of 33.75% on any director's loan still outstanding nine months and one day after the company's year end. It is refundable — HMRC repays it once the loan is cleared or written off — but the refund is delayed until nine months after the year of repayment.
How much can a director borrow from their company tax-free?
There is no fixed limit, but if the loan exceeds £10,000 at any point and is interest-free (or below HMRC's official rate), a benefit-in-kind tax charge applies. Any overdrawn loan unpaid nine months after year end also triggers the 33.75% s.455 charge regardless of size.
How do I repay a director's loan?
Common methods are declaring a dividend or bonus and offsetting it against the loan, or repaying from personal funds. To avoid the s.455 charge you must genuinely clear the balance within nine months of year end — repaying and quickly re-borrowing is blocked by the 30-day bed-and-breakfasting rule.
Is a director's loan account illegal?
No. Borrowing from your own company is legal and common. It only becomes a problem if it is overdrawn and not repaid on time (triggering s.455), exceeds £10,000 interest-free (triggering a benefit in kind), or is used to disguise remuneration.
What happens if I can't repay a director's loan?
The company pays the 33.75% s.455 charge until the loan is repaid or formally written off. A written-off loan is treated as income in your hands (taxed like a dividend) and the company may also owe National Insurance. Speak to your accountant before writing off a loan.