If you run your own limited company, sooner or later you will probably take money out that is not salary or a dividend. That is a director's loan. It is not wrong or unusual, but it does come with rules, and getting them wrong can lead to a tax charge that ties up your cash for a long time.
Here is what a director's loan account really is, when HMRC starts to take an interest, and the simple steps you can take to keep things tidy.
What is a director's loan account?
A director's loan account (often shortened to DLA) is just a record. It tracks money moving between you and your company that is not salary, dividends or expenses you have paid on the company's behalf.
It can go two ways:
- You owe the company - you have taken money out that is not pay or a dividend. The account is overdrawn.
- The company owes you - you have put your own money in, or paid for something on its behalf. The account is in credit.
The company is a separate legal person from you, even if you own all the shares. So when you take money out, the law treats it as a loan unless it clearly is something else.
Why HMRC cares about overdrawn loans
HMRC worries that company owners will take money out as a "loan" instead of as a dividend or salary, and avoid the income tax that would normally apply. To stop that, there is a specific company tax charge on overdrawn director's loans that are not repaid quickly enough.
It is called the section 455 charge (named after the bit of law it comes from), and it sits inside your Corporation Tax return.
The nine months and a day rule
If your director's loan account is overdrawn at the end of your company's accounting year, you have nine months and one day after the year-end to clear it. That is the same deadline as your Corporation Tax bill.
Clear it in time, and there is no s455 charge. Miss the deadline, and the company has to pay tax on the balance that is still outstanding.
How much is the s455 charge?
For loans made now, the s455 rate is 33.75% of the overdrawn balance. So if you owe your company £10,000 at the year-end and have not cleared it nine months and a day later, the company pays £3,375 in s455 tax.
For loans made on or after April 2026, the rate is going up to 35.75%. The mechanics are the same - only the percentage changes - but it means a bigger bill if you leave a loan outstanding past the deadline.
The s455 charge is not a penalty. It is a deposit with HMRC that you get back once you repay the loan - but you can wait a long time for it.
You get the money back - eventually
The s455 charge is refundable. Once you repay the loan (or write it off, which has its own tax consequences), the company can reclaim the tax. But the refund only comes nine months and a day after the end of the accounting period in which you repaid it.
In practice, that can mean the cash is locked up with HMRC for a couple of years or more. Not ideal for a small business.
Heads up - Paying the loan back just before year-end and then taking it straight out again ("bed and breakfasting") does not work. HMRC has specific anti-avoidance rules that ignore repayments made this way.
Other things to watch out for
The s455 charge is the headline issue, but two other things often catch directors out.
Benefit in kind on cheap or interest-free loans
If your loan goes above a certain size during the year and you are not paying HMRC's official rate of interest on it, the difference counts as a benefit in kind. That means extra tax for you personally and a Class 1A National Insurance bill for the company, reported through a P11D.
Loans written off
If the company decides to forgive the loan rather than collect it, the written-off amount is generally treated as income in your hands, similar to a dividend, and taxed accordingly.
How to avoid the s455 charge
There are three simple, legitimate routes. Pick whichever fits your situation.
- Repay the loan. Put the money back into the company before the nine months and one day deadline. Straightforward and clean.
- Vote a proper dividend. If the company has enough retained profit, declare a dividend in line with company law (proper paperwork, board minutes, dividend vouchers) and use it to clear the balance. You will pay personal tax on the dividend, but you avoid the s455 charge.
- Run a bonus through payroll. Pay yourself extra salary or a bonus, with PAYE and National Insurance handled properly, and use the net pay to clear the loan.
Which one is best depends on the company's profits, your other income for the year, and what is happening with National Insurance. If you are not sure, talk to your accountant before the year-end, not after.
Heads up - Keep the director's loan account up to date all year, not just at year-end. It is much easier to fix a small balance in good time than to find a large one a week before the deadline.
Reporting it on your Corporation Tax return
Overdrawn director's loans are reported on a supplementary page to the company tax return called the CT600A, which sits alongside the main CT600. The CT600A is where you tell HMRC:
- How much was owed at the year-end.
- How much was repaid within nine months and one day.
- How much s455 tax is due, if any.
- Any earlier loans being repaid that trigger a refund.
Get this section wrong and you can either overpay tax you do not owe, or underpay and face interest and penalties later. It is one of the most common areas HMRC queries on small company returns.
Filing your CT600 and CT600A with TaxOptimiser
This is where we can help. TaxOptimiser lets you prepare and submit your Corporation Tax return - including the CT600A for director's loans - directly to HMRC, with the figures flowing from your accounts so you are not retyping numbers.
You can:
- Record director's loan movements through the year and see the running balance.
- Work out the s455 charge at the right rate, including the move to 35.75% for loans made from April 2026 onwards.
- Track repayments and reclaim earlier s455 tax when the loan is paid back.
- File the CT600 and CT600A with HMRC in one go, with the iXBRL accounts attached.
A quick recap
A director's loan is just money you have taken from your own company that is not pay, a dividend or a reimbursed expense. If the account is overdrawn at year-end and still overdrawn nine months and a day later, the company pays s455 tax at 33.75% now, rising to 35.75% for loans made from April 2026. You get the tax back when you repay the loan, but it can be tied up for years.
The fix is usually simple: repay it, declare a proper dividend, or run a bonus through payroll - and get advice if you are unsure which is best. When the return is ready, TaxOptimiser can file your CT600 and CT600A with HMRC so the loan is reported correctly the first time.