If you run your own limited company, there’s a good chance you’ve dipped into the business bank account for something personal at some point. Maybe it was a holiday deposit, a car repair, or covering a gap before your dividend was declared. That’s relatively common in owner-managed companies.
It does, however, put money onto your director’s loan account (DLA), and this year the tax on an overdrawn DLA went up.
The Autumn Budget is scheduled for 28 October 2026, so now is a sensible time to understand where you stand.
Let’s break it down in plain English.
What’s a Director’s Loan Account (DLA)?
A director’s loan account (DLA) is simply a running record of money moving between you and your company that isn’t salary, dividends or reimbursed business expenses.
There are two ways the account can sit:
In credit:
The company owes you money, for example because you lent it cash to help get the business started. You can normally withdraw this money without any tax consequences.
Overdrawn:
You owe money to the company. This is where the tax rules come into play.
What is s455 on a Director’s Loan Account?
This is a tax the company pays when a director-shareholder owes it money and doesn’t repay it within the required timeframe.
The s455 rate is linked to the higher rate of dividend tax. Following the government’s changes to dividend tax rates, the rate applying to loans and advances made on or after 6 April 2026 increased. (Source: Income Tax Changes).
In practice, that means:
- Money borrowed before 6 April 2026 remains subject to the 33.75% rate.
- Money borrowed on or after 6 April 2026 is subject to the 35.75% rate.
The applicable rate depends on when the loan or advance was made.
The increase isn’t backdated, which is good news. However, it does mean you need to know when each part of your loan balance arose, not just the total amount outstanding. If your DLA has built up across different periods, different parts of the balance may be subject to different s455 rates.
When does the tax kick in?
This is probably the question we’re asked most often.
Many directors think there’s a “safe” amount they can owe before any tax becomes payable. For s455 purposes, the key factor is usually timing rather than the amount borrowed.
How do I clear or get rid of an overdrawn balance?
If your DLA is overdrawn at your company’s year-end, you have nine months and one day after that year-end to clear the balance. (Source: Director’s Loans by gov.uk).
If you do, no s455 charge arises.
If you don’t, the company pays s455 tax on the outstanding amount.
The loan still needs to be disclosed in the company’s Corporation Tax return where required.
Example
- Company year-end: 31 March 2027
- DLA overdrawn on that date
- Repayment deadline: 1 January 2028
- If still outstanding, the s455 charge becomes payable alongside the company’s Corporation Tax liability.
One important point: the s455 charge generally applies to loans made to participators and their associates. For most owner-managed companies where directors are also shareholders, the rules will apply.
What does it cost?
Let’s look at some numbers.
Suppose you withdrew £20,000 in July 2026 and didn’t repay it within the deadline.
At 35.75%, the company’s s455 liability would be:
£20,000 × 35.75% = £7,150
Now imagine your DLA consists of:
- £12,000 borrowed in February 2026, charged at 33.75% = £4,050
- £8,000 borrowed in June 2026, charged at 35.75% = £2,860
Total s455 liability:
£6,910.
Assuming the balance remains outstanding beyond the repayment deadline. The rates used in these examples come from the GOV.UK policy paper.
The good news: you can get it back (eventually)
The s455 charge isn’t a permanent cost.
Once the loan is:
- repaid,
- written off, or
- released,
the company can normally reclaim the tax.
The catch is timing.
The reclaim generally becomes available nine months and one day after the end of the accounting period in which the loan is cleared.
That means the company may be waiting quite a while before the cash comes back.
Writing off the loan isn’t necessarily a free pass either. In many cases, the amount written off will be taxed on the director as dividend income.
Is there a limit on how much I can borrow?
When people mention a “limit” for directors’ loans, they’re usually referring to £10,000. Legally, there is no statutory limit on how much a director can withdraw via a DLA. However, £10,000 is a key threshold that drastically changes how the loan is treated.
This is a completely separate rule from s455.
If a director owes the company more than £10,000 and doesn’t pay interest at least equal to HMRC’s official rate, the loan may create a beneficial loan benefit in kind.
In that situation:
- the director may pay income tax on the benefit,
- the company may pay Class 1A National Insurance,
- the benefit may need reporting through payroll or on a P11D, depending on the reporting method used.
The official rate is currently 3.75%, although HMRC now reviews official rates quarterly.
Example
An interest-free loan of £30,000 outstanding for a full year would create a benefit of:
£30,000 × 3.75% = £1,125
A higher-rate taxpayer could therefore pay £450 of income tax on the benefit, with a separate Class 1A NIC cost arising for the company.
Remember, the threshold applies if the balance exceeds £10,000 at any time during the year.
If you pay the company interest at or above HMRC’s official rate, the benefit normally disappears.
Many loans over £10,000 also require shareholder approval under the Companies Act 2006, so it’s sensible to ensure the appropriate paperwork is in place.
Can I pay the loan back and immediately take it out again?
Some directors try to repay a loan just before the deadline and then immediately take the money back out again.
HMRC has anti-avoidance rules designed specifically to counter this.
The 30-day rule
If:
- you repay at least £5,000, and
- borrow again within 30 days,
HMRC can match the repayment against the new borrowing and treat the original loan as if it had never been repaid.
The arrangements rule
This rule can apply where:
- at least £15,000 is outstanding,
- a repayment is made, and
- arrangements already exist to take further loans of £5,000 or more.
Unlike the 30-day rule, this provision does not rely on a specific time limit.
Using a properly declared dividend or bonus to clear a loan is generally not caught by these rules because tax is being paid on the income used to settle the balance.
What happens if my company goes bust while my DLA is overdrawn?
- Liquidator Action: The appointed liquidator will actively pursue you personally to recover the funds for the creditors.
- Personal Assets at Risk: You may have to use personal savings or sell assets (like your home) to settle the debt.
- Legal Proceedings: Failure to repay can lead to personal bankruptcy or court action taken against you by the liquidator.
- Director Disqualification: If the overdrawn DLA is deemed a result of misfeasance or wrongful trading, you could face disqualification from acting as a director for up to 15 years.
What’s changing for DLA in 2027?
There are two areas worth monitoring.
The Autumn Budget
Because the s455 rate is linked to dividend tax rates, future changes to dividend taxation could affect the rate of tax payable on loans to participators.
Benefits reporting changes
From April 2027, employers can choose to payroll beneficial loans and accommodation benefits. If your DLA creates a benefit in kind, the way the benefit is reported may differ from previous years.
How can you keep your DLA healthy?
You don’t need to avoid using your loan account altogether. You just need to keep it under control.
Some good habits include:
- Check your balance regularly, not just at year-end.
- Know your deadline. Work out your nine-months-and-one-day date as soon as the year ends.
- Plan dividends carefully. A lawful dividend credited to your loan account can clear an overdrawn balance.
- Keep balances below £10,000 where possible or charge interest at HMRC’s official rate.
- Keep clear records of when withdrawals were made, particularly where different s455 rates may apply to different loans or advances.
- Ensure all necessary Corporation Tax disclosures are completed correctly.
Get in touch with Fynax today
Director’s loan accounts are one of the areas where a little planning can save a significant amount of tax and avoid unnecessary reporting issues.
If you’re not sure where your DLA stands, or you’d like help working out the most tax-efficient way to clear an overdrawn balance, get in touch with the Fynax team.
We’ll review your position, explain the options in plain English, and help you put a plan in place before tax deadlines become expensive surprises.
