Section 455 Tax Guide: How the Director’s Loan Account Charge Works?
• July 16, 2026
Section 455 tax generally applies when a UK close company lends money to a participator, such as a director-shareholder, and the loan remains outstanding nine months and one day after the end of the company’s accounting period.
For relevant loans made on or after 6 April 2026, the Section 455 tax rate is 35.75%. Earlier loans may be taxed at a previous rate.
The company pays the Section 455 charge through its Corporation Tax return. The director may also face separate benefit-in-kind tax if the loan exceeds £10,000 and insufficient interest is charged.
Key Takeaways For UK Directors And Close Companies:
- S455 tax is normally paid by the company, not personally by the director.
- The rate is 35.75% for relevant loans made on or after 6 April 2026.
- Earlier loans may remain subject to 33.75% or another historical rate.
- The payment deadline is generally nine months and one day after the accounting-period end.
- A genuine repayment can reduce the charge or create Section 458 relief.
- The company may have to wait before receiving an S455 tax refund.
- Loans above £10,000 may create a separate benefit-in-kind charge.
- Temporary repayment followed by renewed borrowing may not qualify for relief.
- CT600A is used to report loans to participators and the related tax charge.
What Section 455 Tax Means Under The Corporation Tax Act 2010?
Section 455 of the Corporation Tax Act 2010 creates a company tax charge on certain loans or advances made by a close company to a participator.
A close company is broadly a company controlled by five or fewer participators, or by any number of participators who are also directors. Many owner-managed businesses, family companies and personal service companies meet this definition.
A participator is a person with a share or financial interest in the company. A shareholder is the most common example.
The rules can also apply when a loan is made to an associate of a participator. Associates can include certain relatives, partners and trustees.
Section 455 tax does not apply simply because the borrower is a director. The director must normally be a participator or connected with one, although separate employment-related loan rules may still apply.
What Is A Director’s Loan Account?
A director’s loan account records money moving between a director and the company outside ordinary salary, declared dividends, reimbursed expenses and capital introduced by the director.
The account can be:
- In credit, meaning the company owes money to the director.
- Overdrawn, meaning the director owes money to the company.
An overdrawn director’s loan account may arise when a director withdraws company funds, uses the company bank account for personal spending or takes money before sufficient salary or dividends have been formally approved.
The accounting label alone does not determine the tax treatment. HMRC will consider the underlying transactions, dates and legal position.
The Three-Clock S455 Model
The tax position becomes clearer when the company separates three important dates.
The Loan Date Determines The S455 Tax Rate
The rate depends on when the relevant loan or advance was made.
A payment made before 6 April 2026 may carry a different rate from a payment made after that date, even when both appear in the same director’s loan account.
The Accounting-Period End Determines The Payment Deadline
The Section 455 payment deadline is normally nine months and one day after the end of the accounting period in which the loan arose.
For an accounting period ending on 31 December 2026, the deadline would normally be 1 October 2027.
The Repayment Period Determines When Relief Is Payable
If an overdue loan is later repaid, released or written off, the company may claim Section 458 relief.
However, the refund is not normally payable until nine months and one day after the end of the accounting period in which the loan was cleared.
Current Section 455 Tax Rates
The applicable S455 tax rate depends on the date of the loan or benefit.
| Date The Loan Or Benefit Arose | Section 455 Tax Rate |
|---|---|
| Before 6 April 2016 | 25% |
| 6 April 2016 to 5 April 2022 | 32.5% |
| 6 April 2022 to 5 April 2026 | 33.75% |
| On or after 6 April 2026 | 35.75% |
The 35.75% rate does not automatically apply to every outstanding director’s loan after April 2026. The company must identify when each advance arose.
Why Some Guidance Still Shows 33.75%?
Some older director’s loan guidance still refers to the previous 33.75% rate.
Companies calculating Section 455 tax should use the transaction date and the latest applicable HMRC guidance rather than applying one percentage to the entire account.
How To Calculate Section 455 Tax?
The basic calculation is:
Outstanding Loan Balance × Applicable S455 Rate
For example, if £30,000 remains outstanding and the 35.75% rate applies:
£30,000 × 35.75% = £10,725
Where a director’s loan account contains advances made at different rates, each relevant amount should be calculated separately.
When Must A Director’s Loan Be Repaid?
A director’s loan should normally be cleared within nine months and one day after the end of the company’s accounting period to avoid an S455 payment.
The deadline is not calculated from the date the director withdrew the money.
For a company with a 31 December 2026 year-end:
- The accounting period ends on 31 December 2026.
- The nine-month period ends on 30 September 2027.
- The Section 455 tax is generally due on 1 October 2027.
A genuine repayment before this deadline can reduce or remove the charge.
How CT600A Report the Director’s Loan Tax Charge?
CT600A is the supplementary Corporation Tax form used to report close-company loans and arrangements involving participators.
It records information such as:
- Loans outstanding at the accounting-period end.
- Loans repaid, released or written off.
- Relief available before the payment deadline.
- The Section 455 tax charge.
- The total amount owed by participators.
The resulting charge is transferred to the relevant section of the company’s CT600 return.
The 2026–27 Corporation Tax Online-Service Limitation
HMRC has stated that its Corporation Tax online service will not reflect the new 35.75% rate until 6 April 2027.
A company filing before that update may need to follow HMRC’s amendment process or the instructions provided by its Corporation Tax software supplier.
The online-service limitation does not change the legal tax rate.
How A Company Reclaims S455 Tax?
A company can generally claim relief when the loan is genuinely:
- Repaid.
- Released.
- Written off.
A partial repayment can create a proportionate claim.
Where the repayment takes place after the original payment deadline, the refund is normally delayed until nine months and one day after the end of the accounting period in which the repayment occurred.
Example Of A Delayed S455 Refund
A company has a 31 December year-end, and the director repays the loan on 20 February 2028.
The repayment falls within the accounting period ending 31 December 2028. The related relief would not normally become payable before 1 October 2029.
The company may therefore recover the money from the director long before it receives the tax refund from HMRC.
CT600A And Form L2P
A relief claim may be made through CT600A when the relevant Company Tax Return can still be filed or amended.
Form L2P may be required where the repayment falls into a later accounting period or the claim cannot conveniently be made through the original return.
Claims are generally subject to a four-year time limit.
S455 Tax And Benefit-In-Kind Tax Are Separate
Paying Section 455 tax does not settle every tax consequence of a director’s loan.
A separate beneficial-loan charge may arise when:
- The total balance of employment-related loans exceeds £10,000 during the tax year.
- The director pays no interest or pays interest below HMRC’s official rate.
A taxable beneficial loan may require:
- P11D reporting.
- Income Tax for the director.
- Class 1A National Insurance for the company.
HMRC’s published official rate for sterling beneficial loans is 3.75% from 6 April 2026.
The £10,000 Threshold Is Not An S455 Allowance
The £10,000 threshold applies to the beneficial-loan rules. It is not a general exemption from Section 455 tax.
A loan below £10,000 may still create an S455 tax charge if it remains outstanding beyond the deadline.
A loan above £10,000 may avoid an S455 payment if it is repaid in time, while still creating a benefit-in-kind charge for the period it was outstanding.
Can A Dividend Or Salary Clear A Director’s Loan?
A director’s loan account may be cleared by crediting a valid dividend, salary or bonus to the account.
However, the payment must be genuine and properly authorised.
A dividend requires sufficient distributable reserves and the correct company-law procedure. It cannot simply be backdated to remove an overdrawn director’s loan.
Salary and bonuses may create PAYE and National Insurance liabilities. The amount available to clear the loan may therefore be the net payment after deductions.
Temporary Repayment And The Section 464ZA Rules
A brief repayment followed by renewed borrowing may not qualify for S455 relief.
The 30-day rule can apply where repayments and new loans of at least £5,000 occur within the relevant period.
A separate arrangements rule may apply where at least £15,000 is outstanding and arrangements already exist for further borrowing of at least £5,000.
A repayment should therefore produce a genuine change in the director’s financial position.
What Happens When A Director’s Loan Is Written Off?
Writing off a director’s loan may allow the company to reclaim the related Section 455 tax, but the amount does not become tax-free.
A loan released or written off may be treated as dividend income for the participator. Employment-related reporting and National Insurance consequences may also arise.
The company should review the personal tax, payroll and Corporation Tax consequences before approving a write-off.
Which Loans Are Exempt From Section 455?
Specific statutory exceptions can apply, including:
- Loans made in the ordinary course of a genuine money-lending business.
- Certain ordinary trade-credit arrangements.
- Some loans of no more than £15,000 to full-time employees or directors without a material interest.
- Qualifying loans to charitable trustees for charitable purposes.
These exceptions are narrow.
A company does not become a money-lending business merely because it has made a loan to a shareholder. Most owner-directors with a significant shareholding will also fail the no-material-interest condition attached to the £15,000 employee exception.
The Five-Question S455 Exposure Test
Before calculating director’s loan tax, the company should ask:
- Is the company a close company?
- Is the borrower a participator or associate?
- When did each loan arise?
- What remained outstanding at the deadline?
- Do benefit-in-kind or anti-avoidance rules also apply?
These questions help prevent the company from applying the correct rate to the wrong balance.
Proposed Participator Reporting Changes
The government published a consultation in March 2026 on possible changes to the reporting of company payments, loans, repayments and write-offs involving participators.
The proposals may lead to more detailed transaction-level reporting.
They are not yet confirmed replacements for the current CT600A and L2P procedures. Companies should continue to follow the rules in force for the relevant accounting period.
Common Section 455 Tax Mistakes
Applying 35.75% To Every Historical Loan
The rate depends on when the loan arose. Earlier advances may remain subject to older rates.
Treating £10,000 As An S455 Exemption
The £10,000 limit relates to beneficial loans, not the loans-to-participators charge.
Expecting An Immediate Tax Refund
A genuine repayment may qualify for relief, but the refund can still be delayed.
Using An Invalid Dividend
A dividend must be supported by sufficient distributable reserves and proper authorisation.
Reborrowing After Repayment
Temporary repayment may be restricted by the 30-day rule or the arrangements rule.
Ignoring Loans To Connected People
Loans to associates of participators can also fall within the Section 455 regime.
Forgetting P11D Reporting
The S455 charge and the beneficial-loan rules must be considered separately.
Practical Director’s Loan Account Checklist
| Review Point | Evidence To Check | Main Tax Risk |
|---|---|---|
| Company status | Share register and control rights | Whether the company is close |
| Borrower status | Shareholding and connected persons | Participator or associate status |
| Transaction dates | Detailed loan-account ledger | Correct S455 rate |
| Year-end balance | Bank records and nominal ledger | Amount initially reportable |
| Repayments | Bank statements and accounting entries | Available relief |
| Dividends or bonuses | Resolutions, reserves and payroll | Valid repayment date |
| New borrowing | Transaction history | Anti-avoidance rules |
| Loan above £10,000 | Interest and P11D records | Benefit-in-kind exposure |
| Late repayment | Accounting-period dates | Refund timing |
| Previous tax paid | CT600A and L2P records | Unclaimed relief |
Managing Section 455 Tax As A Cash-Flow Risk
Section 455 tax is not simply a percentage applied to an overdrawn director’s loan account.
The company must consider the date of each advance, its accounting-period end, the repayment deadline and the later date on which relief becomes payable.
Reviewing the account before the year-end can give the company time to identify valid repayments, declare lawful dividends, process remuneration correctly or plan for the tax payment.
A genuine repayment may reduce the charge. A temporary transfer, invalid dividend or backdated accounting entry may not.
Conclusion: Managing S455 Tax With Accurate Timing And Records
S455 tax can create a significant cash-flow cost when a director’s loan remains outstanding beyond the permitted deadline.
The company must consider when each advance arose, which tax rate applies, when payment is due and when any repayment relief can be claimed.
A director’s loan account should be reviewed regularly rather than only when the Corporation Tax return is prepared.
Accurate records, valid dividends, correctly processed remuneration and genuine repayments can help reduce errors and avoid unexpected liabilities.
Because Section 455 tax can overlap with benefit-in-kind rules, National Insurance, anti-avoidance provisions and personal tax consequences, companies should seek professional advice where the loan balance is substantial or the transactions are complex.
Frequently Asked Questions About S455 Tax
Who Pays S455 Tax?
The close company pays and reports the Section 455 charge through its Corporation Tax return.
Is The S455 Tax Rate Always 35.75%?
No. The 35.75% rate applies to relevant loans made on or after 6 April 2026. Earlier loans may carry an older rate.
Does Charging Interest Prevent S455 Tax?
No. Interest may reduce a beneficial-loan charge, but it does not remove S455 tax if the principal remains outstanding.
Can A Company Reclaim S455 Tax?
Yes. Relief may be claimed when the loan is genuinely repaid, released or written off, subject to the relevant timing rules.
Can A Dividend Clear A Director’s Loan?
Yes, provided the company has sufficient distributable reserves and the dividend is validly declared and credited.
Does S455 Tax Apply To Every Director?
No. The borrower normally needs to be a participator or an associate of one, although other director’s loan tax rules may apply.
Can A Director Repay The Loan And Borrow Again?
Yes, but the 30-day and arrangements rules may prevent the repayment from qualifying for S455 relief.
Editorial Note: This guide provides general UK tax information. A company should obtain professional advice based on its accounting period, loan transactions and the borrower’s circumstances.
