A director’s loan account is the running record of money between a company and its director. It can show that the director owes the company, or that the company owes the director. Those two positions look similar in bookkeeping, but the tax consequences are very different.

For a UK owner-managed company in 2026/27, the practical questions are straightforward: what created the balance, when must it be repaid, and does the company face a section 455 charge? The account should answer those questions transaction by transaction, not be repaired at the year end with a vague journal entry.

What goes into a director’s loan account?

GOV.UK defines a director’s loan as money taken from the company that is not salary, a dividend, an expense repayment, or repayment of money the director previously put into the company. The company must keep a record of money borrowed from or paid into the company.

Common entries include:

  • personal bills paid from the company bank account;
  • cash withdrawn by a director that is not payroll or a declared dividend;
  • business costs paid personally by the director;
  • money introduced to help the company meet expenses;
  • repayments in either direction;
  • interest charged on the balance.

At the end of the financial year, the balance appears in the company’s accounts. An overdrawn account means the director owes the company. An in-credit account means the company owes the director.

That distinction is the first control to build into the ledger.

Year-end position Who owes whom? Main question
Account in credit Company owes director When and how will the company repay it?
Account overdrawn Director owes company Was it repaid on time, and do section 455 or benefit rules apply?
Nil balance Neither Do the records support the clearing entries?

A credit balance is normally a company liability. Repaying it does not by itself create salary or dividend income: it returns money already lent to, or spent for, the company. Interest paid by the company is a separate matter and needs its own tax treatment.

The nine-month deadline

For a shareholder-director of a close company, an overdrawn balance can bring the loan-to-participator rules into play. Most small owner-managed companies are close companies, but the legal test depends on control and participation, not simply headcount.

Section 455 of the Corporation Tax Act 2010 makes the company pay a temporary tax charge on relevant loans to participators. The tax is due one day after nine months from the end of the accounting period in which the loan was made.

Suppose a company’s year ends on 31 December 2026. A relevant loan still outstanding after 1 October 2027 reaches the section 455 payment date. Repaying it before that date can prevent the charge, although the transaction still belongs in the accounts and the Company Tax Return.

The deadline runs from the end of the company’s accounting period, not nine months from each withdrawal. That makes the year-end balance important, but HMRC’s manual also notes that the legislation can apply to each advance. A clean ledger should therefore retain dates and amounts rather than only the closing total.

The section 455 rate for loans made from 6 April 2026

HMRC’s Company Taxation Manual states that the section 455 rate follows the dividend upper rate for the tax year in which the loan is made. It records a rate of 35.75% for loans made on or after 6 April 2026.

This is a company charge, not an ordinary Corporation Tax deduction and not a personal tax payment on behalf of the director.

For example, if £20,000 of relevant 2026/27 borrowing remains chargeable:

£20,000 × 35.75% = £7,150

The company pays £7,150 and reports the loan on the CT600A supplementary pages. The £20,000 loan still exists: paying the charge does not clear what the director owes.

HMRC’s short public director-loan page may still show older rates in some tables. For a 2026/27 calculation, use the current rate in HMRC’s Company Taxation Manual and check it again when the return is prepared.

Repayment can unlock relief, but not immediately

When the loan is genuinely repaid, released or written off, the company can claim relief for section 455 tax. A repayment does not produce an instant cash refund.

HMRC says the relief becomes due nine months and one day after the end of the accounting period in which the repayment, release or write-off happened. The company cannot recover interest it paid because the original section 455 amount was late.

This timing can tie up cash for much longer than a director expects. A company that paid the charge after one year end and receives repayment just after the next year end may wait through another relief period.

The 13-week cash-flow forecast helps test whether the company can carry that temporary tax outflow, but the claim itself belongs in the Corporation Tax process.

Do not repay and immediately borrow again

The law contains anti-avoidance rules for repayments followed or preceded by fresh borrowing. GOV.UK highlights two practical cases:

  • a loan over £5,000 where another loan of £5,000 or more is taken within 30 days before or after repayment;
  • a loan over £15,000 where arrangements for another loan already exist when the repayment is made.

These rules stop a circular payment from making a persistent debt appear settled around the deadline. The exact result depends on the sequence and amounts, so a director planning a repayment and a new withdrawal should get the entries reviewed before assuming relief is available.

A genuine repayment should leave the director economically square with the company. Moving money out and back without changing the underlying debt is not the same thing.

Loans above £10,000 can create a benefit in kind

The section 455 charge is not the only tax issue. GOV.UK says that if a shareholder-director owes the company more than £10,000 at any time in the tax year, the company must treat the loan as a benefit in kind. A loan at less than HMRC’s official rate of interest can also produce a taxable benefit.

That can mean:

  • company reporting of the beneficial loan;
  • employer National Insurance consequences;
  • a personal tax charge for the director on the benefit;
  • company income for interest actually paid.

The benefit calculation and section 455 charge answer different questions. One taxes the favourable use of company money; the other is a temporary company charge on an outstanding participator loan. Both can apply to the same balance.

Do not assume that repaying the loan within the nine-month window removes every personal tax consequence. If the balance exceeded £10,000 during the tax year, check the benefit rules separately.

Writing off the loan is not a free exit

If the company releases or writes off the debt rather than receiving repayment, the director can face Income Tax on the amount. GOV.UK also says the company may need to deduct Class 1 National Insurance through payroll.

A write-off needs legal and accounting support. It should not be used as a casual year-end clearing entry. The company must also consider whether it has enough reserves and whether the decision is consistent with directors’ duties, especially if cash is tight.

The nearby salary versus dividends guide explains the formal routes for taking value from a profitable company. A loan should not become an informal substitute for payroll or a dividend that the company could not lawfully declare.

A worked timeline

Consider a company with a 31 March 2027 year end.

  1. The director withdraws £12,000 on 15 November 2026 for a personal house deposit.
  2. The withdrawal is posted to the director’s loan account, not to wages or expenses.
  3. The year-end accounts show a £12,000 overdrawn balance.
  4. The section 455 payment date falls on 1 January 2028.
  5. If the loan remains chargeable, the 35.75% company charge is £4,290.
  6. Because the balance exceeded £10,000, the beneficial-loan rules also need to be considered for the relevant tax year.
  7. If the director genuinely repays the £12,000 on 20 February 2028, the company can claim section 455 relief, but that relief is not payable immediately.

This example is deliberately simple. Interest, multiple withdrawals, repayments, connected people and changes between accounting periods can alter the reporting.

What the ledger should record

A spreadsheet or accounting package can work if it produces a reliable audit trail. Keep one account for each director and capture:

Field Why it matters
Transaction date Places the advance or repayment in the correct period
Amount Supports the running balance and tax computation
Direction Shows whether company or director paid
Description Distinguishes personal withdrawals, expenses and introduced funds
Supporting document Links bank entry, receipt, minute or agreement
Interest Supports benefit and company-income calculations
Running balance Flags when the account becomes overdrawn or exceeds £10,000
Settlement date Supports CT600A reporting and relief claims

Reconcile the account to the bank and card statements every month. Waiting until accounts are prepared can leave the company trying to classify months of transfers after the facts.

A year-end checklist

Before the accounts are signed:

  1. Reconcile every transfer. Remove genuine business expenses from the loan account only when receipts support them.
  2. Separate each director. One person’s credit balance should not silently mask another person’s debt.
  3. Confirm the highest balance. The £10,000 benefit threshold is tested during the year, not only at the year end.
  4. Set the nine-month date. Put it in the company’s tax calendar.
  5. Model section 455. Apply the rate linked to the tax year of each advance.
  6. Check interest. Compare what the director paid with HMRC’s official rate.
  7. Document repayment. Retain the bank evidence and watch the anti-avoidance rules.
  8. Prepare CT600A. Do not assume the main CT600 balance alone reports the loan.
  9. Track relief. Record when a later claim becomes due and the four-year claim limit.
  10. Keep cash aside. A recoverable charge can still be a serious cash-flow cost.

Questions directors ask

Is every payment to a director a loan?

No. Proper salary, declared dividends, reimbursed business expenses and repayment of money the director lent the company are not director’s loans. The records must show which route actually applied when the payment was made.

Can a dividend clear an overdrawn account?

A lawfully declared dividend may be credited against the balance if the director is entitled to it and the company has sufficient distributable profits. It should not be invented retrospectively to repair an unsupported withdrawal.

Does repayment before nine months mean nothing is reported?

Not necessarily. HMRC’s public guidance says CT600A is used to show the amount owed at the accounting-period end, and benefit-in-kind reporting may still apply if the balance exceeded £10,000.

Is section 455 permanent tax?

It is designed as a temporary company charge. Relief can follow a genuine repayment, release or write-off, but the timing rules delay recovery and interest paid on a late charge is not refunded.

What if the company owes the director?

That is an in-credit account: a liability of the company. Repaying principal is generally different from paying salary or a dividend, while any interest needs separate treatment.

Official sources

Rates and guidance checked 16 October 2026. This is general information, not personal tax or legal advice.