Director's Loan Accounts in 2026/27: What the S455 Rate Rise Means for You

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Most company directors borrow from their business at some point. Maybe to cover a personal cost between dividend payments, or to bridge a gap while the company year end approaches. A director's loan account is the mechanism that tracks those movements, and for most of its history it sat quietly in the background as long as the balance was cleared on time. From April 2026 one of the main penalties for leaving it overdrawn got more expensive. Here is what the change means and what you need to know to stay on the right

side of HMRC.

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What a director's loan account actually is

Any money you take out of your limited company that is not salary, dividend or expense reimbursement is a loan. It does not matter whether you called it that or not. HMRC treats it as a director's loan, and your company's accounts should include a director's loan account that records every transaction in and out. If the balance runs negative, meaning the company has paid out more than it has received from you, your DLA is overdrawn.

An overdrawn DLA is not automatically a problem. The issue arises when it is still overdrawn nine months and one day after the end of the accounting period in which the loan was taken.

What S455 tax is and why it exists

Section 455 of the Corporation Tax Act 2010 imposes a charge on the company itself if the director's loan account is still overdrawn at the nine-month point. The charge exists to stop directors taking money out of close companies as loans rather than as dividends, avoiding income tax in the process. A close company is broadly one controlled by five or fewer shareholders, which covers the great majority of owner-managed businesses.

The rate of S455 has historically tracked the dividend upper rate to keep that door shut. For accounting periods ending on or after 5 April 2022, the rate was 33.75 per cent. From 6 April 2026, with the dividend upper rate rising, the S455 rate has moved up to 35.75 per cent.

An important point: the new rate applies to loans made on or after 6 April 2026. If your loan was already outstanding at 5 April 2026, it remains subject to 33.75 per cent. The rate is pinned to when the loan was taken, not when the charge falls due.

A worked example

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 after 31 March 2027 is 1 January 2028. If the loan is still outstanding at that date, your company faces an S455 charge of £30,000 at 35.75 per cent, which comes to £10,725.

Under the old 33.75 per cent rate the charge would have been £10,125. The extra £600 looks modest on a £30,000 loan. On a balance of £100,000 the new rate adds £2,000 to the bill, and on £200,000 it adds £4,000. The more you borrow, the more the rate rise costs.

The nine-month repayment rule in practice

To avoid the S455 charge, you need to clear the overdrawn balance within nine months and one day of your accounting year end. You can do this by paying money back into the company directly, declaring a dividend large enough to wipe out the balance, or running enough salary through payroll to cover it.

The practical constraint most directors hit is timing. If your year ends on 31 March, you have until 1 January the following year to repay. Miss that window and the S455 charge lands on the company's Corporation Tax return, payable alongside the rest of the Corporation Tax bill.

The timing matters because the deadline is tied to the company's year end, not the tax year. A company with a 31 December year end has until 1 October the following year. A September year end company has until 1 July. Know your date and count back.

What happens if you repay after the deadline

The S455 charge is not a permanent cost. It works more like a temporary transfer of tax to HMRC. Once you repay the director's loan, the company can reclaim the S455 tax it paid. The reclaim goes on the Corporation Tax return for the accounting period in which the repayment was made.

There is a catch. You have to wait until nine months after the end of that accounting period before HMRC processes the repayment. In practice, depending on when the repayment falls, the cash can be tied up for the best part of two years before it comes back. That delay has a real cost, and it is another reason to plan ahead rather than treating S455 as a straightforward pay-now, reclaim-later arrangement.

The 30-day anti-avoidance rule

HMRC is aware that directors sometimes repay a loan just before the nine-month deadline, then borrow the same amount back shortly afterwards. If you repay at least £5,000 and then take out a new loan of at least £5,000 within 30 days, HMRC treats the repayment as if it never happened and the original loan stays outstanding for S455 purposes.

This is often called the bed and breakfasting rule. It is worth knowing not because you should try to work around it, but because genuine repayments that happen to be followed quickly by new borrowing can be caught by it even with no avoidance intent. If you repay a loan close to year end and then need to borrow again within a month, speak to your accountant first.

Beneficial loans and the official rate

A separate issue applies when your overdrawn balance exceeds £10,000 at any point during the tax year. Above that figure, HMRC treats the loan as a benefit in kind unless the director is paying interest to the company at or above the official rate.

The official rate of interest for 2026/27 is 3.75 per cent, unchanged from 2025/26. If your company lends you £20,000 and you pay no interest, the taxable benefit is calculated as £20,000 at 3.75 per cent, which is £750. You pay income tax on that amount at your marginal rate, and the company pays Class 1A National Insurance at 13.8 per cent on it. Both have to be reported on a P11D by 6 July following the tax year.

If you charge yourself interest at at least the official rate and pay it to the company, the benefit in kind disappears. The interest payments need to go through the company's books properly, but for larger loan balances it is a clean way to remove the P11D obligation.

When the company owes money to the director

A DLA can also run the other way. If you have paid business expenses from your own pocket, advanced cash to the business, or left declared dividends sitting in the company rather than drawing them, the DLA becomes a creditor balance. The company owes you.

This is generally straightforward and carries no S455 exposure. The company can repay what it owes you at any time and the repayments are not income for you. If you charge the company interest on a loan you have made to it, that interest is taxable income for you, so it needs to be included on your Self Assessment return. HMRC can challenge interest that looks unreasonably high relative to commercial rates, so it pays to keep any interest charge at a level you can justify.

Keeping your DLA in order before year end

The practical steps are straightforward but they need to happen before year end rather than after it. A few things worth doing now:

• Know your company's accounting year end date and count forward nine months and one day to find the S455 repayment deadline.

• Keep a running total of what you have taken out and what you have put back. Your accountant can help you track this, or a simple note in your accounting software is fine.

• If the DLA is heading overdrawn and is not likely to clear in time, plan the repayment route early. Waiting until the last month limits your options.

• If the balance has gone above £10,000 at any point during the year, make sure a P11D is filed by 6 July. If you are charging interest, check the paperwork is in order.

• If you took out a loan before 6 April 2026 and repay it, remember the old 33.75 per cent rate applies. New loans from April 2026 onwards carry the 35.75 per cent charge.

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The bottom line

Director's loan accounts are one of the most common areas where small company directors walk into unexpected tax charges. The S455 rate increase from 33.75 per cent to 35.75 per cent from April 2026 makes leaving a loan overdrawn more costly than it used to be, and the beneficial loan rules mean that even mid-size balances carry a P11D obligation if interest is not being charged correctly.

None of this is complicated once you know the rules, but the rules do have some moving parts, and the timing of repayments matters more than most people realise. If you are not sure where your DLA stands heading into your next year end, that is the right conversation to have now rather than in January. At YF Accounting we review director's loan accounts as part of our year-end planning work and make sure the position is clean before any deadlines land. Get in touch if you would like us to take a look.