Director's Loan Account and s455: When the Charge Bites

The s455 charge is one of the most misunderstood pieces of corporation tax, and one of the most expensive to get wrong. Most of the trouble comes from misreading the 9-month clock, the bed-and-breakfasting rules, or the interaction with beneficial-loan benefits in kind.

What counts as an overdrawn director's loan

If a close company makes a loan to a participator (typically a director-shareholder) and the loan remains outstanding 9 months and 1 day after the end of the accounting period, the company pays the s455 charge on the outstanding balance. 'Close company' is defined at CTA 2010 s.439: broadly, fewer than five participators (or any number of participator-directors) control the company. Most owner-managed businesses qualify.

It doesn't matter whether the 'loan' was documented as such. An overdrawn director's loan account is a loan in HMRC's eyes, whether it grew through expense reimbursements that never happened, drawings the bookkeeper didn't reclassify, or a deliberate advance.

The 9-month rule and when s455 triggers

The clock starts at the end of the accounting period. A 31 March 2026 AP triggers s455 on anything still outstanding at 1 January 2027, the same date the corporation tax falls due, and reported on the CT600A supplementary pages. The two are paid together. There's no grace period beyond the 9-month-and-1-day point.

Current s455 rate and how to calculate it

The rate just changed. 33.75% for loans advanced before 6 April 2026; 35.75% for loans advanced on or after 6 April 2026, aligning with the increased dividend upper rate. Where a director has a mix of pre- and post-6-April advances, document explicitly which advances any repayments clear. The company can choose, and the choice matters.

Reclaiming s455 with form L2P

s455 is refundable under s.458 once the loan is repaid, released or written off, but not immediately. The reclaim is available 9 months and 1 day after the end of the accounting period in which the repayment falls. Form L2P is the mechanism. The practical consequence: cash with HMRC can be tied up for nearly two years between charge and refund, which makes the s455 charge feel more painful than its eventual net cost.

Bed-and-breakfasting and the 30-day rule

The anti-avoidance rules at CTA 2010 s.464A and s.464C exist because the obvious dodge (repay just before 9 months + 1 day, redraw a few days later) used to work. It no longer does.

• 30-day rule (s.464A): if £5,000 or more is repaid and £5,000 or more is re-borrowed within 30 days, the repayment is ignored for s455 purposes.
• Arrangements rule (s.464C): if the loan balance immediately before repayment was £15,000 or more, and at the time of repayment there are arrangements or an intention to re-borrow £5,000 or more, the repayment is ignored regardless of how long the gap is.
• Repayments funded by taxed income (salary, bonus or properly declared dividend) sit outside both rules.

The arrangements rule is the dangerous one. A 35-day gap won't save you if HMRC can show an intention to redraw. Pattern-of-behaviour evidence from prior years is enough.

Beneficial loan interest and P11D overlap

Parallel to s455, if the total loan exceeds £10,000 at any point in the tax year, the director gets a benefit in kind under s.175 ITEPA 2003: the difference between actual interest paid and HMRC's official rate (currently 3.75%). It's reported on the P11D, Class 1A NIC applies at 15%, and the deadline runs to the standard 6 and 22 July P11D and Class 1A NIC dates.

The £10,000 BiK threshold and the s455 charge are independent of each other. A £9,000 loan held all year: BiK doesn't apply (below threshold) and s455 may apply (if outstanding at 9 months + 1 day). A £30,000 loan repaid before the AP-plus-9-months date: no s455, but BiK still applies for the period the balance exceeded £10,000.

Practical write-off and repayment strategies

Three routes out, with very different tax outcomes:

The write-off route is the one clients hear about as the 'easy option', and it's almost never the cheapest. The NIC charge under s.188 ITEPA catches almost everyone the first time. And clients who 'repay via dividend' without properly declaring it (no interim accounts, no evidence of distributable reserves) have produced an unlawful distribution that doesn't legally clear the loan, leaving the s455 charge in place anyway.

For the full picture of where the 9-month-and-1-day clock sits in the broader year, see the 2026 deadline calendar.