Director’s Loan Accounts, Tax Rules and Repayment Deadlines
Overview
A director’s loan account records money moving between a director and their limited company that is not properly treated as salary, dividends or repayment of business expenses.
If you borrow from your company, tax charges can arise for both you and the business. If you lend money to the company, different rules apply, particularly where you charge interest.
This guide explains the main rules for owner-managed limited companies, including section 455 tax, beneficial loans, repayments and write-offs.
Tax information reviewed on 13th October 2026. The treatment depends on the company, the borrower and the individual transactions.
Detailed Content
1. What is a director’s loan account?
Your director’s loan account, often called a DLA, records amounts you owe the company or the company owes you.
An overdrawn account means you owe the company money.
A credit balance means the company owes you money, for example because you lent it funds or paid business costs personally.
Personal bills paid by the company may create a loan balance if they are not otherwise correctly treated as remuneration or a benefit. A withdrawal does not become a dividend simply because it is labelled as one, dividends require sufficient distributable profits and the appropriate approval and records.
2. Section 455 tax on qualifying loans
Section 455 can apply when a close company lends money to a participator, usually a shareholder, or their associate. Most small owner-managed companies are close companies, but the rules do not apply automatically to every loan to every director.
The rate depends on when the loan was made:
35.75% for loans made on or after 6th April 2026.
33.75% for loans made from 6th April 2022 to 5th April 2026.
Earlier loans may carry an earlier rate.
This is a separate company tax charge, not a penalty or the ordinary Corporation Tax rate on profits. The £10,000 beneficial-loan threshold does not exempt a shareholder loan from section 455.
If a qualifying loan remains outstanding at the end of the Corporation Tax accounting period, genuine repayment before the charge becomes payable will normally prevent the company having to pay it, subject to the anti-avoidance rules. The usual payment point is nine months and one day after that accounting period ends.
That tax timetable is not a universal legal repayment term. Your loan agreement may require earlier repayment. Your accountant should also check CT600A reporting and whether any tax has already been charged on earlier advances, the same loan is not simply charged again every year because it remains outstanding.
3. Reclaiming section 455 tax
Where the company has paid section 455 tax, it can normally claim relief following repayment, release or write-off of the qualifying loan.
The refund is not immediate. Relief is normally due nine months and one day after the end of the accounting period in which the repayment, release or write-off took place. A claim is required and a four-year claim limit applies. Interest paid on the section 455 tax cannot be reclaimed.
A write-off can create personal tax and National Insurance liabilities, so it is not a tax-free shortcut.
4. Loans over £10,000 and benefits in kind
The small-loan exemption normally applies where combined relevant loan balances do not exceed £10,000 at any time during the tax year.
If that threshold is exceeded, an interest-free or low-interest loan may create a taxable benefit unless another exemption applies. The benefit is generally based on the difference between interest calculated using HMRC’s official rate and interest actually paid.
It is not normally tax on the entire borrowed amount, and the calculation is not restricted to the amount above £10,000.
HMRC’s published actual official interest rate is 3.75% from 6th April 2026. Check the rate and calculation method applicable to the relevant period rather than assuming that rate will never change.
Where a taxable beneficial loan arises, the company normally reports it on form P11D and pays Class 1A National Insurance on the benefit. The director pays Income Tax on that benefit. Paying sufficient interest may remove the cheap-loan benefit, but does not itself remove a section 455 charge.
5. Repayment and reborrowing, the anti-avoidance rules
Temporarily repaying a loan and then borrowing again may not secure section 455 relief.
The 30-day rule can apply where repayments total at least £5,000 and qualifying new borrowing totals at least £5,000 within the relevant window. Borrowing before or after repayment can count. HMRC can match the repayment against the new borrowing instead of the original loan, restricting relief for the original balance.
A separate arrangements rule can apply where at least £15,000 is outstanding immediately before repayment and arrangements already exist to borrow at least £5,000 again. This rule is not limited to 30 days.
Waiting 31 days is therefore not a guaranteed solution. Certain repayments directly credited as taxable dividends or payroll bonuses can fall within an exception, but these must be lawful, correctly taxed and properly documented. Ask your accountant to review the transactions before relying on relief.
6. Writing off a director’s loan
A formal release or write-off can create taxable income for the director. The Income Tax treatment depends on shareholder and employment status.
Employee loan write-offs normally require P11D reporting and Class 1 National Insurance handling through payroll. This differs from the Class 1A charge on a beneficial loan.
Obtain advice before a write-off and document any necessary approvals. It should not be treated as automatically cheaper than salary, dividends or repayment.
7. When the company owes you money
Repayment of the principal of a genuine loan you made to the company is normally not taxable income for you.
If you charge interest, that interest is personal income and may be deductible for the company, subject to the applicable tax rules. The company generally deducts 20% Income Tax from interest paid to you and reports and pays it quarterly using form CT61. The interest should also be included in your personal tax reporting where required.
Step-by-Step Procedure
Reconcile the DLA regularly, separating loans, salary, dividends, business expenses and personal payments.
Record each advance and repayment date, not just the year-end balance.
Check the relevant section 455 rate and deadline, allowing time for a genuine repayment and any tax payment.
Monitor the highest combined loan balance during the tax year, and check interest actually paid and benefit reporting.
Review further borrowing before and after repayments, including any existing arrangements to borrow again.
Seek advice before using dividends, payroll bonuses or a write-off, and retain approvals and supporting records.
Keep evidence of returns, payments and relief claims, including CT600A, P11D and CT61 where relevant.
Frequently Asked Questions
What counts as a director’s loan?
Money borrowed from the company that is not correctly treated as salary, a lawful dividend or expense repayment can be a loan. The account also records money the director has lent to the company.
Is section 455 still 33.75%?
That rate applies to qualifying loans made from 6th April 2022 to 5th April 2026. The rate for qualifying new loans from 6th April 2026 is 35.75%.
Can a loan below £10,000 still attract section 455 tax?
Yes. The £10,000 threshold relates to the small-loan benefit exemption, not a general exemption from section 455.
Does repaying the loan remove every tax charge?
Not necessarily. Repayment may prevent or allow relief from section 455, subject to anti-avoidance, but a taxable cheap-loan benefit may already have arisen during the tax year.
Is the section 455 refund paid as soon as I repay?
No. Relief is normally due nine months and one day after the end of the accounting period in which the repayment happened. The company must claim it.
Can I repay and borrow again after 30 days?
Do not assume that this works. The wider arrangements rule can restrict relief even outside the 30-day window.
What should I do if my DLA is overdrawn?
Ask for a review before the relevant deadline. 360 Accounts can help check the balance, repayment options, benefit reporting and company and personal tax implications.