Director's loan accounts: the records, the nine-month rule and the s.455 charge.

If you run a limited company and you have ever moved money between yourself and the business that wasn’t salary, a dividend, an expense repayment or a share transaction, you have used your director’s loan account — whether you called it that or not. It is one of the quietest parts of running a company and one of the first places HMRC looks. Get the records right and it is a non-event. Get them wrong and it can cost you real cash and a tax charge that takes years to come back.

What is a director’s loan account?

A director’s loan account (DLA) is the running ledger of money between you and your company that isn’t salary, dividend, expense repayment or a capital transaction. It is not a bank account and not a formal loan agreement — it is simply a record that keeps track of who owes whom.

Two directions are possible, and it is worth being clear which one you are in:

• You owe the company — you spent company money on something personal, or drew cash out without it being a paid salary or a properly declared dividend. Your DLA is overdrawn. This is the direction that triggers tax.
• The company owes you — you paid for something with your own money, or lent the company funds to get it going. The company’s DLA to you sits in credit, and it can repay you tax-free when it has the cash.

Most one-person companies drift into an overdrawn DLA without meaning to: a personal cost paid from the business card, a round-sum drawing taken because money was tight, a dividend voted before the profits were really there. None of that is a problem on its own. Not recording it is. HMRC’s own overview is a sensible starting point — see gov.uk on director’s loans.

How does the s.455 charge work?

The s.455 charge is a temporary tax the company pays when your loan account is overdrawn at year end and stays overdrawn too long. Under section 455 of the Corporation Tax Act 2010, if your DLA is overdrawn at the company’s accounting year end and not cleared within nine months and one day of that year end, the company pays a charge on the outstanding amount, due at the same time as its Corporation Tax.

The nine-month window is the thing to fixate on. Repay the overdrawn balance in time and no s.455 charge arises for that year at all. It is the same deadline as your Corporation Tax payment, which is a helpful coincidence: if you know when your CT is due, you know when your loan needs to be square. HMRC sets this out at gov.uk on money you owe your company.

The rate rose in April 2026

The s.455 rate tracks the dividend upper rate in force when each advance was made. That gives two rates you need to keep straight:

The higher rate came in with the autumn Budget 2025 changes. Crucially, the rate attaches to each advance, not to the balance as a whole. So if you drew money in February 2026 and more in May 2026, a single overdrawn figure at year end is charged at a blend — part at 33.75%, part at 35.75%. Anyone treating the whole balance as one rate will get the number wrong, in either direction.

A note on sources, because the two figures confuse people: the increase was announced at the Autumn Budget 2025, which raised the dividend upper rate — the rate s.455 is pegged to — with effect from 6 April 2026. At the time of writing, HMRC’s general guidance page on director’s loans still shows the previous 33.75% figure and has not caught up with the change; the split above follows the legislation. If you are reading this long after publication, confirm the current rate with your accountant before running the numbers.

Want the figure for your own balance? The free s.455 calculator does the split-rate maths — each slice at its own rate, plus your repay-by date.

Do I get the s.455 money back?

Yes — s.455 is refundable, but not on your timetable. Once the loan is repaid, or written off, the company can reclaim the charge. The catch is the wait: relief is claimed and the refund only becomes due nine months and one day after the end of the accounting period in which the repayment happened. Repay a loan today and, depending on where you are in your year, the refund can be well over a year away.

s.455 is a cash-flow trap, not a permanent tax — but the delay between repaying the loan and getting the money back routinely surprises directors who assumed it would net off straight away.

That is why the honest advice is to avoid triggering it rather than to rely on reclaiming it. The charge does come back, but the company is out of pocket in the meantime, sometimes for a long time.

Repaying just before year end doesn’t fool anyone

Do not try to dodge the charge by repaying the loan just before year end and redrawing it shortly after — the rules anticipate exactly that move. This is known as “bed and breakfasting”. Where £5,000 or more is repaid and then redrawn within 30 days, HMRC matches the repayment to the redrawing, so the “repayment” is ignored for s.455 and the balance is treated as never having been cleared. A genuine repayment funded from real money is fine; a paper round-trip is not.

What about the £10,000 benefit-in-kind threshold?

Separately from s.455, a large overdrawn loan can be a taxable benefit in kind. If the loan exceeds £10,000 at any point in the tax year, borrowing it interest-free or cheaply is treated as a benefit — reportable on a P11D, with Income Tax for you as the director and Class 1A National Insurance for the company. You can avoid this by charging interest at HMRC’s official rate on the loan.

This is a genuinely separate issue from the s.455 charge, and it is easy to miss because the two have different triggers: s.455 is about the balance at year end and the nine-month clock, while the benefit-in-kind test is about crossing £10,000 at any point during the year. A loan can catch one, both or neither.

Can I just write the loan off?

You can, but do not do it on a whim — writing off a director’s loan has its own tax consequences, treated much like a distribution for the director with National Insurance capable of applying, so talk to your accountant before writing anything off.

What records actually keep you safe?

The records that matter are the ones you kept at the time, not the ones you reconstruct under pressure. HMRC enquiries into owner-managed companies routinely start at the director’s loan account, precisely because it is where informal money movements pile up. What you want to be able to produce is:

1. Every drawing and every repayment, dated — and noted with what it was for at the moment it happened, not months later from memory.
2. A running balance you can actually produce — on request, without a weekend of spreadsheet archaeology. If you cannot say what the balance is today, neither can your accountant.
3. Loans minuted — a short board record that the company agreed to lend you the money, so it reads as a loan rather than an undeclared dividend.
4. Repayments evidenced — a bank transfer, a dividend or salary formally offset, not just a note saying it was cleared.

One more trap worth naming: dividends declared without enough profit to cover them are unlawful, and HMRC will often reclassify them as loans — which drops them straight into your DLA and, potentially, into s.455. That is why the paperwork behind a dividend matters as much as the loan records themselves. We cover it in dividend paperwork for UK limited companies.

How LtdRecord keeps your loan account straight

This is exactly the kind of paperwork LtdRecord was built for. Tell it, in plain English, “took £5,000 out as a loan” and it prepares the loan record pack, keeps the evidence in one place, and its compliance radar tracks your DLA exposure over time. That includes estimating the potential s.455 charge at the correct rate for when each advance was made — it distinguishes pre- and post-6 April 2026 drawings, so a blended balance is estimated properly rather than lumped under one rate.

What it does not do is give you tax advice. LtdRecord produces draft records for you and your accountant to review — the running ledger, the minutes, the dated evidence — so that when the nine-month clock matters, or when an enquiry lands on your DLA, you are handing over a clean file rather than trying to remember what a transfer eighteen months ago was actually for.

The director’s loan account is not complicated. It just punishes forgetfulness. Record the money as it moves, watch the nine-month deadline, keep an eye on £10,000, and the whole thing stays boring — which, when it comes to tax, is exactly what you want.