YF AccountingLast updated: 13 October 2026
8 min read
The s455 charge on overdrawn director’s loan accounts rose from 33.75% to 35.75% on 6 April 2026, tracking the increase in the dividend upper rate. The new rate only applies to loans taken on or after that date. Anything already outstanding on 5 April 2026 stays at 33.75%. The charge only bites if the loan is still outstanding nine months and one day after your company’s year end, so for most directors there is still time to plan around it.
This post covers what has changed for 2026/27 and how to plan around it. If you are new to the topic and want the basics first (what a director’s loan account is, how it goes overdrawn and why HMRC cares), start with our evergreen guide to director’s loan accounts and the hidden tax trap inside your own company, then come back here for the 2026/27 changes.
What changed on 6 April 2026?
Section 455 of the Corporation Tax Act 2010 charges the company tax when a director’s loan from a close company is still overdrawn nine months and one day after the end of the accounting period in which it was taken. The charge exists to stop directors taking money out as loans rather than dividends, dodging income tax in the process, which is why the s455 rate has always tracked the dividend upper rate.
From 6 April 2026, dividend tax rates rose by two percentage points in the basic and higher bands, taking the dividend upper rate to 35.75%. The s455 rate moved up with it:
| When the loan was made | S455 rate |
|---|---|
| On or before 5 April 2026 | 33.75% |
| On or after 6 April 2026 | 35.75% |
A close company is broadly one controlled by five or fewer shareholders, which covers the great majority of owner-managed businesses, so if you own and run your own company, assume these rules apply to you.
Which rate applies to my loan?
The rate is pinned to when the loan was made, not when the charge falls due. A loan taken in March 2026 that is still outstanding at the nine-month point is charged at 33.75%, even though the deadline lands well into the new tax year. A loan taken in May 2026 carries the 35.75% rate.
Watch out if you have both. Repayments to a mixed loan account need care over which advance they are set against, because clearing the newer, higher-rate borrowing first can save real money. That allocation is exactly the kind of detail worth agreeing with your accountant before year end rather than after.
How much extra will the rate rise cost?
Say you took a loan of £30,000 from your company on 1 May 2026 and your accounting year ends on 31 March 2027. Nine months and one day later is 1 January 2028. If the loan is still outstanding at that date, the company faces an s455 charge of £30,000 × 35.75% = £10,725. Under the old rate the same charge would have been £10,125.
| Loan balance | S455 at 33.75% (pre-April 2026 loans) | S455 at 35.75% (new loans) | Extra cost |
|---|---|---|---|
| £30,000 | £10,125 | £10,725 | £600 |
| £100,000 | £33,750 | £35,750 | £2,000 |
| £200,000 | £67,500 | £71,500 | £4,000 |
The more you borrow, the more the rise costs, and remember the charge sits on top of the loan itself. Borrow £100,000 and fail to repay in time, and the company is £135,750 out of pocket until the loan is repaid and the s455 reclaimed.
How does the nine-months-and-one-day rule work?
To avoid the charge entirely, clear the overdrawn balance within nine months and one day of the end of the accounting period in which the loan was taken. The deadline is tied to your company’s year end, not the tax year:
- 31 March year end → repay by 1 January the following year
- 31 December year end → repay by 1 October the following year
- 30 September year end → repay by 1 July the following year
Miss the window and the s455 charge lands on the company’s corporation tax return, payable alongside the rest of the corporation tax bill. Know your date and count back, because waiting until the final month closes off most of your options.
What is the best way to clear an overdrawn director’s loan?
There are three routes, and the rate rises have shifted the maths on all of them:
- Repay with personal funds. The cleanest route if you have the cash. No tax consequences at all. The loan simply disappears.
- Declare a dividend to clear the balance. This works, but dividends now cost more too: 35.75% in the higher band from April 2026, after the £500 allowance. You avoid s455 but you crystallise dividend tax instead. The difference is that dividend tax is a final cost, whereas s455 is at least recoverable later. The company also needs sufficient distributable reserves.
- Vote a bonus or salary through payroll. Deductible for corporation tax, but it carries income tax at up to 45% plus employee NI and 15% employer NI, usually the most expensive route for a higher-rate director.
Which route wins depends on your other income, the company’s reserves and how long you could otherwise leave the money in the pension or the business. We run these numbers side by side in our salary vs dividends guide for 2026/27.
What happens if I repay after the deadline?
The s455 charge is not a permanent cost. It works more like a forced deposit with HMRC. Once the loan is repaid, the company can reclaim the s455 tax it paid. But there is a catch: the reclaim cannot be processed until nine months after the end of the accounting period in which the repayment was made. Depending on timing, the cash can be tied up for the best part of two years, interest-free for HMRC, before it comes back.
That delay has a real cost, and at 35.75% the sums locked up are bigger than ever. Treating s455 as a casual pay-now, reclaim-later arrangement is an expensive habit.
Do I pay tax on a director’s loan over £10,000?
Separately from s455, if your overdrawn balance exceeds £10,000 at any point in the tax year, the loan is a benefit in kind unless you pay the company interest at or above HMRC’s official rate. The official rate of interest for 2026/27 is 3.75%, unchanged from 2025/26.
If the company lends you £20,000 interest-free, the taxable benefit is £20,000 × 3.75% = £750. You pay income tax on that at your marginal rate, and the company pays Class 1A National Insurance at 15% on it. Both go on a P11D by 6 July following the tax year. Charge yourself interest at the official rate or above, paid to the company through the books, and the benefit in kind disappears entirely. For larger balances that is a clean way to remove the P11D obligation.
What are the bed and breakfasting rules?
HMRC knows the obvious dodge: repay the loan just before the nine-month deadline, then draw the same money straight back out. Two anti-avoidance rules block it:
- The 30-day rule. If you repay £5,000 or more and then take new loans of £5,000 or more within 30 days, the repayment is matched against the new borrowing and the original loan is treated as never repaid for s455 purposes.
- The arrangements rule. For balances of £15,000 or more, even outside the 30-day window, a repayment does not count if at the time there were already arrangements or an intention to redraw a similar amount.
Worth knowing not because you should engineer around it, but because genuine repayments followed quickly by new borrowing can be caught even with no avoidance intent. If you repay close to the deadline and then need to borrow again within a month, speak to your accountant first. One repayment route that sidesteps the rules entirely: dividends or salary credited against the loan account are not caught by bed and breakfasting, because they are taxed as income in their own right.
Frequently asked questions
What is the s455 tax rate for 2026/27?
35.75% for loans made on or after 6 April 2026, matching the new dividend upper rate. Loans that were already outstanding on 5 April 2026 remain chargeable at 33.75%. The rate is fixed by when the loan was advanced, not when the nine-month deadline falls.
Is s455 tax permanent?
No. It is refundable once the loan is repaid, written off or released, but only from nine months after the end of the accounting period in which repayment happens. The cash can sit with HMRC for up to around two years, with no interest paid to the company, which is the real cost of the charge.
Can I avoid s455 by paying interest on my director’s loan?
No. This is a common mix-up. Paying interest at HMRC’s official rate (3.75% for 2026/27) removes the benefit-in-kind charge on loans over £10,000, but it has no effect on s455. The only way to avoid s455 is to clear the overdrawn balance within nine months and one day of the company’s year end.
Does s455 apply to loans under £10,000?
Yes. The £10,000 threshold only relates to the benefit-in-kind rules. S455 applies to an overdrawn balance of any size that is still outstanding at the nine-month point. A £3,000 loan left unpaid attracts a charge of £1,072.50 at the new rate. Small balances are cheaper to fix, so clear them.
What happens if the company writes off my director’s loan?
The written-off amount is treated as your income, taxed like a dividend in most owner-managed cases, and National Insurance can apply too. The company can then reclaim any s455 paid, but the write-off itself is generally not deductible for corporation tax. It is rarely the cheap option it looks like.
When can my company reclaim s455 tax?
Nine months after the end of the accounting period in which you repaid the loan. The reclaim goes through the corporation tax return, or on form L2P for older periods. Diarise it, because HMRC does not refund s455 automatically, and reclaims are one of the most commonly forgotten repayments in small company tax.
Need a hand with your director’s loan account?
Director’s loan accounts are one of the most common places small company directors walk into avoidable tax charges, and at 35.75% the cost of drifting has just gone up. We review DLAs as part of year-end planning for every limited company client, on fixed fees (limited companies from £50 a month, sole traders from £35 a month), so the position is clean before any deadline lands.
Book a free, no-obligation call or ring us on 0161 531 0959 and we will tell you exactly where your loan account stands.
This article is general information, not personal tax advice. For advice on your own situation, please get in touch.
Founder of YF Accounting, a fixed-fee, fully digital accountancy practice in Manchester serving SMEs, sole traders and landlords across the UK. One point of contact, unlimited support, no surprise bills.
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