Overview
This blog explains what a director's loan is, how the Director's Loan Account (DLA) works, the tax consequences of an overdrawn DLA (S455 Corporation Tax surcharge at 33.75%), benefit-in-kind obligations for loans over £10,000, the implications of writing off a loan, and best practice for Ltd company directors. Written in plain English for owner-managed Ltd companies as of 21 July 2026.
Directors' Loan Account Rules
This guide will explains the key tax rules, deadlines, and compliance requirements for directors' loan accounts. It outlines when tax charges apply, how to avoid common pitfalls, and the steps directors should take to remain compliant with HMRC.
S455 tax rate – The 33.75% tax charge that applies to overdrawn directors' loan accounts.
Repayment deadline – The requirement to repay a director's loan within 9 months and 1 day of the company's year end to avoid the S455 tax charge.
Benefit-in-kind rules – When a director's loan exceeds £10,000 and the circumstances in which a P11D must be submitted.
HMRC's official interest rate – The beneficial loan rate of 2.25% (as of 21 July 2026) used to calculate any taxable benefit.
Written-off directors' loans – How loans that are written off are treated as taxable income and may also be subject to Class 1 National Insurance.
Anti-avoidance rules – HMRC's 'bed and breakfasting' rules, including the requirement for repayments of £5,000 or more to remain outstanding for at least 30 days before they are recognised for S455 purposes.
Frequently Asked Questions
What counts as a director's loan?
Any money from the company that isn't salary, dividends, or expense reimbursement — including personal bills paid by the company.
What is S455 tax?
A 33.75% Corporation Tax surcharge the company pays if the DLA is still overdrawn 9 months and 1 day after the company's year end. Refundable once the loan is repaid.
What if the loan exceeds £10,000?
Must be reported as a benefit in kind on P11D. Director pays income tax on notional interest; company pays Class 1A NI.
Can a director's loan be written off?
Yes, but the amount becomes taxable income for the director and may attract NI. Rarely the most tax-efficient route.
What is 'bed and breakfasting'?
Repaying a loan just before the deadline then immediately re-drawing it. HMRC's anti-avoidance rule: repayments of £5,000+ must stay in for 30 days to be recognised.
How does a credit DLA work?
The director has lent money to the company. Repayment to the director is tax-free. Interest charged is deductible for the company but taxable income for the director.