The s455 tax charge on directors' loans, explained

Directors Lifeline editorial teamPublished 4 November 2026Last reviewed 4 November 2026

Section 455 is a corporation tax charge of 33.75% on any directors’ loan still outstanding nine months and a day after the company’s year end. It is refundable when the loan is repaid, but the cash goes out now and comes back slowly.

What the charge is for

The rule exists because, without it, a director could take money out of a close company as a loan rather than as salary or dividend and pay no income tax on it. Section 455 of the Corporation Tax Act 2010 makes that expensive. The company pays tax on the outstanding loan at the dividend upper rate, currently 33.75%, and gets it back only when the loan is cleared.

It applies to close companies, which is nearly every owner-managed company in the UK, and to loans to participators, which means shareholders and their associates. For most small companies that means the directors.

When it bites

The charge is triggered if the loan is still outstanding nine months and one day after the end of the accounting period in which it was made. A company with a 31 March year end has until 1 January to clear the balance. Clear it before then and there is no charge. Clear it on 2 January and the charge applies to the full amount outstanding on 1 January, even if it is repaid a day later.

The charge is reported on the CT600 with the company’s ordinary corporation tax, and it is due on the same date.

How it is calculated

Take the loan balance outstanding at the nine-months-and-a-day point and multiply by 33.75%. A £40,000 loan produces a charge of £13,500. If part of the loan was repaid before the deadline, the charge applies only to what is left.

Repayments are set against the oldest part of the loan first. If the loan has built up over several years, this matters when working out which accounting period’s charge is affected.

Getting it back

The charge is repaid to the company nine months and a day after the end of the accounting period in which the loan is repaid, written off or released. So a loan repaid in June 2027, in a company with a 31 March year end, produces a refund due on 1 January 2029. HMRC does not pay it automatically. The company claims it on form L2P or through the CT600 for the relevant period.

This is why the charge is described as a timing cost rather than a real one. It is true, but it is a timing cost that takes cash out of the company for at least eighteen months, and a struggling company does not have eighteen months.

Bed and breakfasting: what does not work

Repaying the loan the day before the deadline and drawing it out again the day after used to be common. Two rules now stop it.

The 30-day rule. If £5,000 or more is repaid and a new loan of £5,000 or more is taken within 30 days, the repayment is ignored for s455 purposes to the extent of the new borrowing.
The intentions rule. If the loan balance is £15,000 or more and, at the time of repayment, there are arrangements or an intention to borrow again, the repayment is ignored regardless of the 30 days.

Repaying with a genuine dividend or bonus, properly declared and taxed, does work, because the money is not coming back out as a loan.

The benefit in kind, separately

If the loan exceeds £10,000 at any point in the tax year and the director pays no interest, or interest below HMRC’s official rate, there is a benefit-in-kind charge on the director personally and Class 1A National Insurance for the company. It is reported on a P11D. It is a smaller amount than s455 but it is a personal liability and it is often missed.

Why s455 is the smaller problem

If the company is trading comfortably, s455 is an irritation: cash out, cash back, some paperwork. If the company is struggling, the overdrawn loan behind the charge is the real exposure. In an insolvency the liquidator pursues the loan itself, from you personally, and the s455 charge is simply one more creditor claim against the company. Directors who focus on avoiding the charge while the company slides are solving the wrong problem.

What to do today

Ask your accountant for the loan balance at the last year end and the date the nine months and a day runs out.
If the company can clear the loan with a lawful dividend or bonus before that date, do it, and make sure the paperwork supports it.
If it cannot, the question is not the tax charge. It is whether the company is solvent. Run the two insolvency tests.
If the answer is no, or you are not sure, speak to a licensed insolvency practitioner before year end, not after.

Nothing on this page is advice. We are an information service. When you want someone who can act, we introduce you to a licensed insolvency practitioner. The first conversation is free. The practitioner pays our referral fee; you pay nothing.

Questions directors ask

Is s455 a personal tax?

No. It is paid by the company, on its corporation tax return. The director has a separate benefit-in-kind charge if the loan is over £10,000 and interest-free, but that is a different tax.

Can I repay the loan and borrow it again to avoid the charge?

Not within 30 days, and not at all if the repayment is made with the intention of redrawing more than £15,000. The bed and breakfasting rules catch both.

What if the company cannot afford the charge?

It is a corporation tax debt like any other, and HMRC will pursue it. A company that cannot pay its s455 charge usually has a wider cash problem, and that is the question to answer first.

Does the charge still apply if the company is in liquidation?

The charge is a company liability and HMRC claims it in the liquidation. It does not reduce what you owe the company, which the liquidator pursues separately.

Talk to a licensed practitioner about my DLA

Directors Lifeline is an information service. We introduce you to a licensed insolvency practitioner who deals with this every week and calls back the same day. The first conversation is free and confidential.