Blog | by Andy Mildner | October 2026
Directors' Loan Accounts: The Section 455 Rules Explained for 2026/27
Andy Mildner
Taking money out of your company between dividends is common, and it's not automatically a problem. It only becomes one if the loan is still outstanding when the company's accounts are finalised, because that's when Section 455 tax and, in some cases, a personal benefit-in-kind charge can both apply.
What actually counts as a director's loan?
Any money you take from the company that isn't salary, dividend or a genuine expense reimbursement sits in your director's loan account. That includes personal bills paid from the company account, cash drawn before a dividend is formally declared and even an overpayment of expenses that's never corrected. It's easy for this to happen gradually rather than as one deliberate decision, which is exactly why it's worth checking the balance in a timely manner each month rather than 9months after the year end assuming it's fine
The account can also run the other way, if you've put your own money into the company you're owed that back and the company generally can repay it to you tax-free. It's only an overdrawn balance (where the company has effectively lent money to you) that creates the tax issues covered below. If the money's genuinely needed rather than just convenient it's often worth formally declaring a dividend instead, see our guide to salary vs dividends in 2026/27 for how the current rates compare, since a properly declared dividend avoids all of the Section 455 mechanics entirely.
What happens if the loan isn't repaid in time?
The company has nine months and one day after its accounting year end to have the loan repaid in full, or Section 455 tax applies to whatever's still outstanding. For loans made on or after 6 April 2026, that rate is 35.75%, up from 33.75% for loans made before that date, deliberately set to match the higher rate of dividend tax so there's no tax advantage to taking a loan instead of a dividend and simply not repaying it.
Section 455 isn't a permanent cost though, once the loan is genuinely repaid or written off, the company can reclaim the tax back from HMRC it previously paid. However timing is usually the issue as the claim can only be made from nine months and a day after the end of the accounting period in which the loan was repaid, so the cash can be tied up for a while even once the underlying loan is cleared.
Can I just repay it and take the loan out again?
Not without a real risk of HMRC unwinding it. Repaying an overdrawn loan shortly before the year end and then redrawing a similar amount shortly afterwards is known as bed and breakfasting and specific anti-avoidance rules exist to catch it. If more than £10,000 is withdrawn again within 30 days of repayment, or there was already an intention to redraw the funds when the repayment was made, HMRC can treat the original loan as never having been repaid at all.
Is there a separate tax charge just for having the loan?
Yes, if the balance goes over £10,000 at any point during the tax year and the company doesn't charge at least HMRC's official rate of interest, currently 3.75% for 2026/27, the difference is treated as a benefit-in-kind. That means a P11D entry for you personally, income tax on the benefit, and Class 1A National Insurance for the company, on top of whatever happens with Section 455 on the underlying balance. Charging interest at or above the official rate avoids this particular charge, though the Section 455 position on an unpaid loan is unaffected either way.
Before your year end
If you think you might have an overdrawn loan account, it's worth checking:
- What's the actual balance today and ensure the movements in the year are actual movements.
- Is there enough distributable profit to clear it with a dividend before the nine month deadline?
- If interest is being charged, is it at or above the current 3.75% official rate?
- If you're planning to repay and redraw, does the timing genuinely avoid a bed and breakfasting challenge?
Frequently asked questions
What is the Section 455 tax rate for 2026/27?
35.75% for loans made on or after 6 April 2026. Loans made before that date are still charged at 33.75% if they remain outstanding, which means a loan account spanning the two periods can have both rates applying to different parts of the balance.
How long do I have to repay a director's loan?
Nine months and one day after the end of the company's accounting period in which the loan was taken. Miss that and Section 455 tax is due on the outstanding balance even though it's ultimately reclaimable once the loan is repaid (so we look at it as a timing tax with HMRC).
Do I pay tax personally as well as the company?
Only if the loan is over £10,000 and interest below the official rate is charged, which creates a personal benefit-in-kind charge in addition to the company's Section 455 position. A loan under £10,000, or one charged interest at or above 3.75%, avoids that specific charge.
Can the company get the Section 455 tax back?
Yes, once the loan is repaid or written off, but the claim can only be made from nine months and a day after the end of the accounting period the repayment falls in so there's usually a delay before the cash actually comes back.
Need help?
If you're not sure where your director's loan account currently stands, or your year end is approaching and a balance needs clearing, it's worth checking well before the nine month deadline rather than at the last minute. For our limited company clients the person doing your bookkeeping already sees this balance monthly so it's flagged long before it becomes a deadline problem.
Book a free consultation: https://loveyouraccountants.com/contact.
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Josh Clarke
Josh is our Chief Operating Officer, overseeing operations to ensure a smooth, responsive and high-quality service. With a practical, clear approach...
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