If you run a limited company, it is easy for money to move between you and the business during the year. You might pay a company bill personally, put money into the company, take money out for personal use or use the company account for something that is not a business expense.
Those transactions are often recorded through a director’s loan account.
If the company owes you money, that is usually fairly straightforward. The more important tax issues arise when you owe money back to the company.
What is a director’s loan account?
A director’s loan account keeps track of money moving between you and the company that has not already been dealt with as salary, a dividend, an expense repayment or another clearly identified payment.
For example, if you pay £2,000 of company expenses from your personal account, the company may owe you £2,000. If you later take £5,000 from the company for personal use without treating it as salary or a dividend, you could instead end up owing the company money.
This is why the balance should be checked properly when the company’s annual accounts are prepared.
Why does it matter if you owe the company money?
A limited company is legally separate from you. Taking money from the company is therefore not the same as moving money between two of your own personal bank accounts.
If the withdrawals are not salary, dividends, expense repayments or repayments of money the company already owed you, they may leave you with a loan from the company.
If that loan is still unpaid after the relevant deadline, the company can have an extra Corporation Tax charge to pay.
The 9-month-and-1-day deadline
For a typical owner-managed company, the key deadline is 9 months and 1 day after the end of the accounting period in which the loan arose.
If the relevant amount is still owed at that point, the company may have to pay tax under section 455 of the Corporation Tax Act 2010.
For loans made on or after 6 April 2026, the section 455 rate is 35.75%. The rate was 33.75% for loans made from 6 April 2022 to 5 April 2026, so the date the loan arose matters.
A simple example
Suppose your company has a 31 March 2027 year end and you borrowed £20,000 from it after 6 April 2026.
If the full £20,000 is still owed on 1 January 2028, the section 455 charge would normally be £7,150 at 35.75%, assuming no other rules change the calculation.
That tax is paid by the company, not by you personally. It can still create a significant cash cost on top of the company’s normal Corporation Tax bill.
Can the company get the section 455 tax back?
Usually, yes. If the loan is later repaid, released or written off, the company can normally claim relief for the section 455 tax.
The refund is not immediate. Relief is normally not due until 9 months and 1 day after the end of the Corporation Tax accounting period in which the repayment, release or write-off happened.
That delay is one reason it is better to deal with a growing director’s loan before the original payment deadline rather than assume the company can simply get the tax back straight away.
Repaying it for a few days may not solve the problem
HMRC has rules designed to stop directors briefly repaying a loan and then taking the money back again.
One of those rules can apply where repayments of £5,000 or more are followed or preceded by new loans of £5,000 or more within a 30-day period.
There are also wider rules for larger balances where there was an arrangement or intention to borrow the money again.
So if you are planning to clear the balance shortly before the deadline and then take the money back out, get advice before assuming the repayment has fixed the problem.
What happens if the loan goes over £10,000?
A separate tax issue can arise if you have a cheap or interest-free loan from your company and the total outstanding loans go above £10,000 during the tax year.
In that situation, the low-interest or interest-free loan can count as a taxable benefit. The benefit is broadly based on the interest HMRC says should have been charged compared with any interest you actually paid.
HMRC’s official rate for sterling beneficial loans is currently 3.75% from 6 April 2026. HMRC can now review that rate during the tax year, so the current rate should be checked when the benefit is calculated.
This is separate from section 455. It is therefore possible for the company to have section 455 tax to pay while you also have a taxable benefit connected with the loan.
Can you clear the loan with a dividend or salary?
Sometimes, but the dividend or salary has to be valid in its own right.
A dividend requires the company to have enough profit available and the dividend needs to be properly declared. A salary or bonus has to go through payroll and can create PAYE and National Insurance.
You cannot simply look back at personal withdrawals and rename them as dividends or salary because that produces a better tax result.
Our guide on whether a director can invoice their own company looks at another situation where the description used for a payment does not decide how it should be taxed.
What should you do if your director’s loan account is overdrawn?
Start by checking how the balance was built up.
Make sure company expenses you paid personally have been included, personal spending paid by the company has been identified, dividends were actually declared and any repayments have been recorded.
Then check when the borrowing arose, how much will still be owed 9 months and 1 day after the year end, whether the balance went above £10,000 and whether any recent repayments were followed by more borrowing.
If the balance is becoming large, deal with it before the deadline where possible. Thames Williams can review the director’s loan as part of the company accounts and related tax work, or provide advice before you decide how to repay or clear it.
A temporary HMRC filing issue for the new 35.75% rate
There is also a current practical issue for companies affected by the new rate.
HMRC says its Corporation Tax online service will not be updated for the new 35.75% loans-to-participators rate until 6 April 2027.
If the new rate applies and the company needs to file before then, HMRC says the return will need to be amended after 6 April 2027 to reflect the correct rate.
That is a limitation of HMRC’s online service, not a delay to the tax-rate change itself.
