You transfer £10,000 from your company account to your personal account. You plan to repay it next month, so you assume nothing serious has happened.
That is where many directors get caught out.
A director's loan account records money moving between you and your company outside normal salary, dividends, expenses, or money you have previously lent the business. If you take more than you are entitled to, the account can become overdrawn. That can create tax and reporting consequences.
Key Takeaways
Company money does not automatically become personal money.
An overdrawn loan account means the director owes the company.
Section 455 tax can apply when qualifying loans remain unpaid.
The Section 455 rate is 35.75% for loans made from 6 April 2026.
A separate benefit-in-kind rule can apply to loans above £10,000.
Where The Problem Starts
Director's loan problems often begin with small transactions rather than one large withdrawal.
A director might pay a personal bill from the company account. Another payment follows a few weeks later. Before long, several transactions sit in the accounts without clear treatment.
HMRC expects companies to keep records of money directors borrow from or pay into the business. The loan position also needs appropriate treatment in the company's accounts.
This is where regular bookkeeping becomes useful. Keeping records updated helps identify an overdrawn balance before year-end.
(Source: HMRC, Director's loans)
When Section 455 Tax Applies
Section 455 tax applies to certain loans made by close companies to their participators. This can include shareholder-directors who take money from their companies.
If a qualifying loan remains outstanding nine months and one day after the end of the company's Corporation Tax accounting period, Section 455 tax can become payable.
The rate is 35.75% for loans made or benefits conferred on or after 6 April 2026. The increase followed changes to the dividend upper rate for 2026/27.
(Source: HMRC, Company Taxation Manual, CTM61505)
Consider a qualifying loan of £20,000:
Loan outstanding: £20,000
Section 455 rate: 35.75%
Potential Section 455 tax: £7,150
That is a substantial tax charge created by leaving the loan outstanding.
The company can generally claim relief for Section 455 tax after the loan is repaid, released, or written off, subject to the relevant rules.
(Source: HMRC, CTM61610, Relief for repayments)
The £10,000 Rule Is Different
The Section 455 rules are not the only issue.
A director can also have a taxable benefit from an interest-free or cheap employment-related loan. However, an exemption applies where the total balance of beneficial loans does not exceed £10,000 at any time during the tax year.
(Source: HMRC Internal Manual, Employment Income Manual, EIM26140)
This means the £10,000 figure is not a general limit on director's loans. It relates to the beneficial-loan benefit rules.
For 2026/27, HMRC's official rate for employment-related loans is 3.75% from 6 April 2026.
(Source: HMRC, Beneficial Loan Arrangements: Official Rates)
So, clearing a director's loan before the Section 455 deadline does not automatically mean there is no personal tax issue. The loan's size, interest charged, timing, and purpose can all matter.
Repaying The Loan Is Not Enough
Some directors try to clear the balance shortly before the deadline and then borrow money again afterwards.
HMRC has anti-avoidance rules covering certain arrangements involving repayments and further loans. These rules can apply where directors repay a loan and then take another loan around the repayment date. That makes the transaction history important.
An accountant should review the withdrawals, repayments, dividends, and timing rather than looking only at the closing balance.
What Should You Check?
Before the accounts are finalised, directors should review:
The current director's loan account balance.
Every withdrawal and repayment.
Personal expenses paid from the company.
Dividends declared during the year.
Interest charged on any outstanding loan.
Potential benefit-in-kind implications.
The Corporation Tax reporting position.
These checks can identify problems before they reach the filing stage.
Accurate records also make it easier to prepare reliable statutory accounts and investigate unusual balances.
Where Section 455 applies, the company also needs to report the relevant loan information through the appropriate Corporation Tax return and supplementary pages.
(Source: HMRC, CT600A: Close Company Loans)
Do Not Treat Company Cash As Personal
A director's loan account is not automatically a problem. The risk starts when company funds become mixed with personal spending without proper accounting treatment.
Keep personal and company spending separate. Record withdrawals and repayments promptly. Review the loan balance during the year rather than waiting for the accounts deadline.
The practical lesson is simple. If you take money from your company, decide how it should be treated before the balance grows.
With the Section 455 rate now at 35.75% for relevant loans made from 6 April 2026, ignoring an overdrawn balance can become expensive.
(Source: HMRC, Company Taxation Manual, CTM61505)
If you are unsure about your director's loan account, an early review can clarify the position before accounts and tax returns are prepared. Artifin Accountants can review the records, explain the tax implications, and help you understand what needs attention.
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