If your company lent you money and you have not paid it back nine months after your year end, the company pays S455 tax on what is still outstanding. For money lent on or after 6 April 2026 the rate is 35.75 per cent, up from 33.75 per cent, so £30,000 drawn this year and left outstanding costs £10,725 alongside your corporation tax.
You get it back when you repay the loan. You do not get the interest back, and you may be waiting a long time for the refund.
What an overdrawn director’s loan account is
Money you have taken out of the company that is not salary, not a dividend, and not repayment of something you put in. It builds up quietly: a company card used for something personal, drawings taken through the year against dividends that were never formally voted, a transfer to cover a personal bill.
None of that is wrong in itself. A director’s loan is a normal feature of a small company. It becomes expensive when it is still outstanding at the wrong moment.
The S455 charge and the new rate
S455 is a corporation tax charge on the loan balance outstanding nine months after your accounting period ends. It is set at the dividend upper rate, which is why it moved this year.
| Loan made | S455 rate |
|---|---|
| Up to 5 April 2016 | 25% |
| 6 April 2016 to 5 April 2022 | 32.5% |
| 6 April 2022 to 5 April 2026 | 33.75% |
| On or after 6 April 2026 | 35.75% |
Worth knowing where that comes from, because it is not where most people look. HMRC’s Company Taxation Manual at CTM61505 states the rate as 33.75 per cent for loans made on or after 6 April 2022 and 35.75 per cent from 6 April 2026. The plain English guidance page for directors still showed 33.75 per cent when this was written, so the widely quoted figure is now behind the manual.
The reason it moved is that S455 tracks the dividend upper rate, and the dividend higher rate is now 35.75 per cent. If you are budgeting from a figure you looked up last year, it is out of date by two percentage points.
One detail worth getting right, because it is easy to assume otherwise. The rate is fixed by when the loan was made, not by when you repay it or which accounting period the balance sits in. So a loan account that has built up over several years can carry different rates on different slices of it. HMRC's own worked example in the manual does exactly that, applying three different rates to three loans inside one accounting period. If your overdrawn balance is old money rather than money drawn this year, some of it will still be at 33.75 per cent or lower.
The nine month window
The charge is not triggered by borrowing. It is triggered by still owing.
If the loan is cleared within nine months of the end of your corporation tax accounting period, there is no S455 to pay. You still report the balance on form CT600A with your company tax return, but nothing is charged.
That window is the whole game. A loan taken in month one of the year can sit there for nearly two years before it costs anything, which is exactly why people forget about it. The clock that matters is your year end plus nine months, not the date you took the money.
Getting the S455 tax back
S455 is refundable, which makes it unusual. Repay the loan, and the tax comes back.
The timing is the painful part. You claim from nine months and one day after the end of the accounting period in which the loan was repaid, written off or released. So repay the loan in month two of a year, and you are waiting until nearly a year after that year ends to get the money. It is a refund, but it is not a quick one.
And you cannot reclaim the interest. Interest runs on the S455 until it is paid or the loan is cleared, and that part is gone for good.
The 30 day rule that catches repayments
The obvious move is to repay the loan just before the nine month deadline and take it out again afterwards. HMRC closed that a long time ago.
If the loan was more than £5,000 and you take another loan of £5,000 or more within 30 days before or after repaying it, S455 is charged on the original loan as if you had never repaid it. Above £15,000, where there were arrangements to reborrow, the 30 day window does not even apply.
This catches honest cases as much as engineered ones. If you clear the account with a dividend in March and then need money out again in early April, the timing alone can put you inside the rule. Repaying properly means the money staying repaid.
The other tax you might owe
S455 is the company’s charge. There can be a personal one running alongside it, and people are often surprised to be caught by both.
If the loan is more than £10,000 at any point in the tax year, or you pay interest below HMRC official rate, there is a taxable benefit in kind on the cheap loan. That goes on the P11D and gives the company a Class 1A National Insurance charge.
Worth noting for planning: employment related loans are one of the benefits that stay outside mandatory payrolling when it arrives, so they are not swept up with company cars and private medical in the April 2027 changes. The reporting for this one stays where it is.
If the loan is written off rather than repaid, the treatment changes again. It is generally taxed on you much like a dividend, and the company has National Insurance to deal with. Writing off a loan is not a way to make it disappear quietly.
What to do if yours is overdrawn
- Find the actual balance. Not the figure you remember, the figure in the accounts.
- Work out your real deadline: your accounting period end plus nine months.
- Check whether it went over £10,000 at any point in the tax year, because that is a separate charge from S455 and has its own reporting.
- Decide how it gets cleared. A dividend if there are distributable reserves, salary or a bonus if there are not, or actual repayment from personal funds. Each has a different cost, and the cheapest route depends on your other income. Our guide to paying yourself from a limited company covers the trade offs.
- If you are clearing it with a dividend, make sure the paperwork is real and dated. A dividend needs distributable profits, and a backdated minute is worse than no minute.
- Do not repay and immediately reborrow. See the 30 day rule above.
Directors of close companies now also have more to disclose on their own return, which is worth reading alongside this if you have a loan account: the close company Self Assessment rules changed for 2025/26.
If you are not sure where your loan account stands or what clearing it would cost, send us your last set of accounts and we will tell you the balance, the deadline and the cheapest way out of it. Often it is less alarming than it looks, and occasionally it is more, but either way it is better known than guessed.
Frequently Asked Questions
HMRC's Company Taxation Manual gives 35.75 per cent for loans made on or after 6 April 2026, up from 33.75 per cent. The rate follows the dividend upper rate, so it moved when dividend rates moved. Note that the summary guidance page on GOV.UK still shows 33.75 per cent at the time of writing.
No. If the loan is cleared within nine months of the end of your corporation tax accounting period there is no S455 charge, although you still report the balance on form CT600A. The charge only bites on what is still outstanding at that point.
Yes. S455 is refundable once the loan is repaid, written off or released. You cannot reclaim the interest, only the tax, and you claim from nine months and one day after the end of the accounting period in which the loan was cleared.
Not without consequences. If the loan was more than £5,000 and you take another loan of £5,000 or more within 30 days either side of repaying it, HMRC charges S455 on the original loan anyway. Above £15,000 with arrangements to reborrow, the 30 day limit does not even apply.
It can be. If the loan is more than £10,000 at any point in the tax year, or you pay interest below HMRC official rate, there is a taxable benefit as well as the S455 charge. They are separate charges and you can be caught by both.