Directors’ Loan Account Calculator UK 2025/26 — S455 Tax, Beneficial Loans & Write-Off
A director’s loan account records money borrowed from or owed to a company by a director. If the account is overdrawn (director owes the company money) at the end of the accounting period and is not repaid within 9 months, the company faces a Section 455 tax charge of 33.75% of the outstanding balance. This calculator works out the full tax cost and the best repayment strategy.
Section 455 rate 2025/26: 33.75%. Official interest rate: 2.25%/year. S455 is due 9 months + 1 day after company year end (same as CT payment deadline). When repaid, S455 is refunded but refund is deferred 9 months. Anti-avoidance: repaying and re-borrowing within 30 days does not avoid S455. Always take advice from an accountant before writing off a DLA.
How Directors’ Loan Accounts Work
A director’s loan account is essentially a running tab between the director and the company. It records every financial flow that is not salary, dividend, or legitimate business expense. Common items that create an overdrawn DLA include personal purchases put through the company, cash withdrawals, and loans explicitly agreed by the board.
An overdrawn DLA is not automatically problematic — it becomes a tax issue if it is not cleared within 9 months and 1 day of the company’s accounting year end. This is the same deadline as the corporation tax payment itself.
Section 455 Tax — Rates and Refund
| Scenario | S455 rate | When payable | When refunded |
|---|---|---|---|
| Standard overdrawn DLA | 33.75% | 9 months + 1 day after year end | 9 months after repayment |
| Loan to participator (non-director) | 33.75% | Same | Same |
| Loan written off / waived | No S455 (but income tax applies to director) | — | N/A |
The S455 refund delay is an important cashflow consideration. If you repay the loan in month 10 after year end, you do not receive the S455 refund for another 9 months. The S455 charge is not a penalty — it is a temporary tax charge designed to prevent avoidance.
Writing Off a Directors’ Loan — Tax Consequences
If the company writes off (waives) a director’s overdrawn loan, the write-off is treated as a distribution (dividend-equivalent) to the director. The director must declare the amount written off on their self-assessment return and pay income tax at dividend rates (8.75% basic, 33.75% higher, 39.35% additional). The company does not get corporation tax relief on the write-off. S455 tax already paid will be refunded.
Frequently Asked Questions
Yes — if the company has sufficient distributable reserves, voting a dividend and crediting it directly to the DLA is a common way to clear an overdrawn balance. However, you must ensure the dividend is properly declared with board minutes and that the company genuinely has distributable profits. An underpayment of tax could arise if an illegal dividend is later re-characterised. Seek accountant advice before this route.
HMRC has anti-avoidance rules to prevent ‘bed and breakfasting’ — repaying a DLA just before the 9-month deadline and then re-borrowing shortly after. If £5,000 or more is repaid within 30 days before the deadline AND re-borrowed within 30 days after, the repayment is effectively ignored for S455 purposes. This means genuine repayments must remain cleared for more than 30 days either side.