What Is a Director’s Loan Account, and How Can You Legally Avoid a 33.75% or 35.75% Section 455 Tax Charge?

Company money is not the director’s money: how an overdrawn DLA arises, the taxes it may trigger, and why planning before the year-end is more valuable than correcting mistakes afterwards

A premium guide for directors and shareholders of UK limited companies

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In an owner-managed company, the distance between the company’s bank account and the director’s personal wallet can appear very small.

The director built the business. They bring in clients, take the commercial risk, sign contracts and decide how the company’s money is used. When the company has £50,000 in the bank, it can feel natural to assume that the money belongs to the person who owns and runs the business.

Legally, however, one of the most important boundaries of a limited company is the separation between the company’s assets and the director’s personal assets:

The company’s money belongs to the company, not to the director or shareholder.

That separation does not disappear simply because the same person is a director, shareholder and Person with Significant Control.

Whenever a director uses company money for a personal expense, transfers money into their own bank account or withdraws more than the company owes them, the reason for the payment must be identified immediately.

Was it salary processed through PAYE? Was it a legally declared dividend? Was it reimbursement of a business expense? Was the company repaying money previously lent by the director? Or was it, in reality, a loan?

When the payment does not fall into one of the first categories, it may become a director’s loan, which must be recorded in the Director’s Loan Account, or DLA.

HMRC broadly defines a director’s loan as money received by a director, or in some circumstances by a close family member, which is not salary, a dividend, reimbursement of expenses or repayment of money previously introduced into the company. [GOV.UK reference 1]

An overdrawn DLA is not merely an inconvenient accounting balance. It may result in a Section 455 tax charge for the company, a taxable benefit for the director, P11D and National Insurance obligations, personal tax on a dividend or remuneration used to clear the balance, company law problems and a personal debt that may be pursued by a liquidator.

For that reason, the Director’s Loan Account should not be treated as a temporary holding account where personal withdrawals are “parked” until the accountant prepares the annual accounts.

It is the record of a genuine financial relationship between two legally separate persons: the company and the director.

The Verdict at the Beginning

A Director’s Loan Account is the accounting record of money moving between a company and its director.

When the balance is in credit, the company owes money to the director.

When the balance is overdrawn, the director owes money to the company.

In most small owner-managed companies, an overdrawn DLA may fall within Section 455 where the loan is made to a shareholder or another person who is a participator in a close company.

Section 455 does not apply automatically simply because a person holds the title of director. Their connection with the ownership or control of the company is important. [GOV.UK reference 2]

When a loan remains outstanding at the end of the accounting period, it normally has to be reported on form CT600A.

If it is not repaid, released or validly cleared within nine months and one day after the end of the accounting period, the company may have to pay Section 455 tax.

Even where the loan is repaid during that nine-month period and no Section 455 tax is ultimately payable, CT600A may still be required if the loan existed at the balance-sheet date. [GOV.UK reference 3]

The applicable rate depends on when the loan was advanced:

33.75% for loans made between 6 April 2022 and 5 April 2026.

35.75% for loans made on or after 6 April 2026.

The increase to 35.75% applies to loans advanced and benefits conferred from 6 April 2026. It is not restricted only to accounting periods beginning after that date. [GOV.UK reference 4]

Section 455 is often described as a “penalty tax” because the amount can be substantial. Technically, however, it is not a fine.

It is a temporary anti-avoidance tax intended to prevent company profits from being extracted indefinitely in the form of loans rather than taxable salary or dividends. [GOV.UK reference 5]

The tax may eventually be reclaimed after the loan has been dealt with, but the repayment is not immediate. In the meantime, the company loses access to the cash paid to HMRC, and interest charged on a late Section 455 payment is not normally refunded. [GOV.UK reference 6]

DCTaxAgent Insight

Section 455 may be recoverable. The pressure on cash flow, financing cost and compliance risk are nevertheless very real.

What Is a Director’s Loan Account in Practice?

A DLA is not necessarily a separate bank account.

It is an accounting ledger recording all financial transactions between the director and the company.

It may include money personally introduced into the business, business expenses paid by the director, transfers received from the company, personal bills paid using the company card, dividends declared and credited to the account, salary owed, repayments and interest.

Each director should normally have a separate loan account so that one director’s transactions and liabilities are not mixed with those of another.

The annual accounts must show whether, at the end of the financial year, the director owes money to the company or the company owes money to the director. [GOV.UK reference 7]

A DLA is dynamic. Its balance may change dozens or hundreds of times during the year.

That matters because the tax position is not always determined only by the balance shown on the final day of the accounting period.

For some rules, including beneficial loan provisions and the change in the Section 455 rate from April 2026, the transactions and balances throughout the relevant period must be reviewed.

A closing balance of £20,000 may conceal the fact that the director owed £60,000 at an earlier point.

Similarly, a relatively modest closing balance may consist of loans advanced both before and after 6 April 2026, meaning that different Section 455 rates could apply to different parts of the balance.

The DLA should therefore be reconciled transaction by transaction rather than estimated when the annual accounts are prepared.

DLA in Credit: When the Company Owes the Director Money

A Director’s Loan Account is in credit where the director has introduced more money into the company than they have withdrawn.

For example, suppose the director transfers £25,000 of personal savings into the company, pays £4,000 of business expenses personally and later withdraws £10,000.

The company would owe the director:

£25,000 + £4,000 − £10,000 = £19,000

Repayment of that £19,000 would not normally be treated as salary or a dividend. It would be repayment of a genuine debt owed by the company to the director.

This is one of the most useful distinctions in remuneration planning.

The director should not have to pay dividend tax merely to recover money previously lent to the company.

However, there must be clear evidence showing how the credit balance arose. This may include bank transfers, properly supported business expenditure or other amounts genuinely owed to the director.

An “in credit” balance created retrospectively from unverified expenses provides little protection.

If the director cannot demonstrate that the payments were for business purposes or that personal funds were genuinely introduced into the company, the proposed set-off may be challenged.

DLA Overdrawn: When the Director Owes the Company Money

The account becomes overdrawn when the director uses more money than the company owed them.

Most problems do not begin with a formal loan agreement. They begin with ordinary transactions such as a personal purchase made with the company card, a bank transfer described as “drawings”, a personal loan repayment paid from the company account, a holiday, a property deposit, a personal vehicle or monthly withdrawals greater than the salary processed through payroll.

Problems also arise when money is taken in anticipation of a dividend that has not yet been declared.

From a tax perspective, the description entered into the banking application does not determine the treatment.

What matters is the legal and economic nature of the payment.

If the amount is not salary, a dividend, reimbursement of business expenses or repayment of an existing debt owed to the director, it will usually remain a loan that must be repaid.

The Insolvency Service confirms that cash withdrawals and personal expenditure paid from company funds should be recorded in the DLA and that the money continues to belong to the company. [GOV.UK reference 7]

This is where one of the most dangerous assumptions in an owner-managed company appears:

“We will decide at the end of the year what the money represented.”

A legitimate reclassification may sometimes be possible through a dividend or bonus declared later.

However, the legal effect generally begins when the entitlement is validly created. It does not retrospectively change the original withdrawal date.

Until then, the money remains a loan.

Who Is Subject to Section 455?

Section 455 primarily applies to loans made by a close company to a participator or an associate of a participator.

Broadly, a close company is a company controlled by five or fewer participators, or by participators who are also directors.

A participator is generally someone with an interest in the company’s share capital or income. In most small companies, this means a shareholder. [GOV.UK reference 8]

Most small owner-managed limited companies are close companies.

Where the director also owns shares, the usual position is relatively clear: they are both a director and a participator, so the loan may fall within Section 455.

The position may be different for a director who owns no shares, has no control rights and has no other relevant interest in the company.

However, the rules cannot normally be avoided simply by transferring the money to someone else.

Associates may include relatives, partnership partners and certain people connected with trusts or estates. [GOV.UK reference 9]

The commercial description “director’s loan tax” is therefore useful, but technically incomplete.

Section 455 is not determined solely by someone’s role as a director. It is concerned with value extracted from a close company by participators and people associated with them.

Why Does Section 455 Exist?

Without this rule, a shareholder could extract company profits in the following way.

The company earns £100,000 of profit.

Instead of declaring a dividend or paying remuneration, the company “lends” £100,000 to the director without any genuine repayment date.

The director uses the money personally but argues that they have received no income because the amount is theoretically repayable.

If the loan could remain open for years without consequences, the director would receive the economic benefit of the company’s profits without the normal taxation applying to salary or dividends.

Section 455 therefore imposes a temporary company tax calculated as a percentage of the amount extracted.

From 6 April 2026, the percentage is linked to the dividend upper rate of 35.75%. [GOV.UK reference 4]

Paying Section 455 does not convert the withdrawal into a dividend and does not cancel the director’s debt.

After the tax is paid, the company still has a legal claim against the director, the director still owes the principal balance, beneficial loan rules may continue to apply and the debt may be pursued if the company becomes insolvent.

Section 455 is therefore an additional company tax. It is not the price paid by the director for the right to keep the money.

33.75% or 35.75%: The Date of the Loan Matters

For loans advanced from 6 April 2022 to 5 April 2026, the Section 455 rate is 33.75%.

For loans advanced on or after 6 April 2026, the rate is 35.75%. [GOV.UK reference 4]

This may produce a mixed-rate calculation within the same accounting period.

Suppose a company has an accounting year from 1 January to 31 December 2026 and the director withdraws:

£18,000 on 15 March 2026

and

£12,000 on 1 July 2026

If both amounts remain outstanding and are subject to Section 455, the calculation may be:

£18,000 × 33.75% = £6,075

£12,000 × 35.75% = £4,290

Total Section 455: £10,365

Applying one rate to the entire £30,000 closing balance could produce an incorrect result.

The company and its accountant therefore need to know not only the year-end balance, but also the dates on which the individual components of that balance arose.

There is also a temporary practical difficulty. HMRC announced that its own Corporation Tax online service would be updated for the 35.75% rate from 6 April 2027.

Companies affected before the update may need to follow HMRC’s procedure for amending the return. [GOV.UK reference 10]

The Nine-Month-and-One-Day Rule

This is the central date in DLA planning.

When a loan is outstanding at the end of the accounting period, Section 455 does not necessarily have to be paid immediately.

The company has until nine months and one day after the end of the accounting period for the loan to be repaid, released or otherwise validly cleared.

For companies outside the quarterly instalment payment regime, this usually corresponds with the standard Corporation Tax payment deadline. [GOV.UK reference 6]

Example

The company’s accounting period ends on:

31 March 2027

At that date, the director owes the company:

£32,000

The relevant deadline would normally be:

1 January 2028

If the balance remains outstanding after that date and all withdrawals were made after 6 April 2026:

£32,000 × 35.75% = £11,440

The company must fund £11,440 to HMRC while still holding a legal claim of £32,000 against the director.

This is one of the most important consequences of Section 455:

The company may temporarily lose £11,440 of cash without the director’s £32,000 debt disappearing.

CT600A May Be Required Even When the Tax Is Avoided

Suppose the director repays the full £32,000 on 15 December 2027, before the deadline of 1 January 2028.

In principle, the company may avoid paying Section 455.

However, the loan was still outstanding at 31 March 2027.

It must therefore normally be reported on CT600A together with the repayment made during the nine-month period.

HMRC confirms that CT600A is required where the loan existed at the end of the accounting period, even where it was repaid before a tax liability became payable. [GOV.UK reference 3]

The distinction is fundamental:

Avoiding payment of Section 455 does not necessarily remove the reporting obligation.

A company may have no Section 455 to pay but still submit an incomplete Corporation Tax return because CT600A was omitted.

How Can Section 455 Be Avoided Legally?

Section 455 cannot be avoided merely by changing the description of a payment or entering an accounting journal after the year-end.

The loan must either be genuinely repaid or cleared against a valid and properly documented liability owed by the company to the director.

Genuine Repayment

The cleanest solution is for the director to repay the money to the company before the nine-month-and-one-day deadline.

The repayment must be genuine and permanent.

A transfer from the director’s personal bank account into the company bank account normally provides the clearest evidence.

Other assets or set-off arrangements may sometimes be used, but these require careful consideration of valuation, documentation and legal substance.

The question is not simply whether the bank statement shows money entering the company.

The real question is whether the director has genuinely and permanently surrendered personal access to the funds.

Setting the Loan Off Against Money Owed to the Director

A director can be both a creditor and debtor of the company at the same time.

They may have paid business expenses personally, introduced working capital or become entitled to salary or dividends that were validly declared but not yet paid.

A genuine liability owed by the company to the director may be set off against the overdrawn DLA.

However, the set-off must be supported by proper evidence.

Expenses or loans cannot be fabricated retrospectively merely to create an artificial credit balance.

Declaring a Legal Dividend

Where the director is also a shareholder, a dividend may be declared and credited to the DLA to reduce or clear the debt.

However, having money in the company bank account is not sufficient.

The company must have profits available for distribution. The dividend must comply with the rights attached to the relevant class of shares, and the decision must be documented through appropriate minutes and a dividend voucher.

A company cannot lawfully pay dividends exceeding the distributable profits accumulated in the current and previous financial years. [GOV.UK reference 11]

A dividend cannot be backdated.

If the director withdrew £20,000 in February and a dividend is legally declared in August, the amount remains a loan until the dividend creates a genuine liability owed by the company to the shareholder.

Crediting the dividend to the DLA may clear the balance from August, but it does not rewrite the history of the February withdrawal.

Avoiding Section 455 through a dividend also does not mean avoiding tax altogether.

The shareholder may owe dividend tax in the tax year in which the dividend is received.

Salary or Bonus

The company may award salary or a bonus and credit the net amount to the DLA.

The remuneration must be properly authorised and processed through payroll, with PAYE and National Insurance applied where required.

An accounting journal entered after the year-end, without a genuine entitlement to remuneration and correct payroll reporting, does not automatically convert the withdrawal into salary.

The choice between a dividend, bonus and cash repayment must be based on the total tax cost rather than only the Section 455 percentage.

A bonus might prevent a 35.75% charge on the loan, but it could produce higher Income Tax, employee National Insurance and employer National Insurance costs.

Planning Before the Transfer

The most effective way to avoid Section 455 is not to create an accidental overdrawn DLA in the first place.

Before money leaves the company, the payment should be identified as salary, a dividend, reimbursement of expenses, repayment of a credit DLA or a loan.

A transaction classified correctly before it takes place is easier to defend than a personal withdrawal explained retrospectively several months after the year-end.

DCTaxAgent Insight

The most expensive Director’s Loan Accounts are usually not created by complicated tax rules. They are created by simple withdrawals made before anyone decided what those withdrawals represented.

Why a Repayment Lasting Only a Few Days May Not Work

A director might try the following strategy:

They repay the loan shortly before the deadline, wait several days and then withdraw the money again after the Section 455 risk appears to have passed.

This is commonly known as bed and breakfasting.

Anti-avoidance rules may disregard the effect of a temporary repayment and treat the original loan as remaining outstanding.

The 30-Day Rule

The mechanical rule may apply where repayments total at least £5,000 and are accompanied by new loans of at least £5,000 during the relevant 30-day period.

The repayment may then be matched against the new withdrawal so that it does not generate relief for the earlier loan. [GOV.UK reference 12]

The Arrangements Rule

A problem may arise even outside the 30-day period where the outstanding balance was at least £15,000 and, at the time of repayment, arrangements existed for new loans of at least £5,000 to be made. [GOV.UK reference 13]

This prevents a superficial strategy such as:

“We will wait 31 days and then take the money again.”

HMRC may consider whether the repayment was genuinely permanent or whether a plan to reborrow already existed.

Economic substance matters more than the formal number of days between the two transfers.

Section 455 and Beneficial Loan Rules Are Separate Regimes

A director may avoid Section 455 by repaying the loan within the required period and still have a taxable benefit.

The two regimes answer different questions.

Section 455 considers whether a close company made a loan to a participator and whether it remained outstanding after the relevant deadline.

The beneficial loan rules consider the advantage received by a director or employee where a company provides money interest-free or at a rate below HMRC’s official rate.

Both sets of tax consequences may therefore apply to the same loan. [GOV.UK reference 4]

The £10,000 Threshold

The small-loan exemption may apply where the total outstanding balance of relevant beneficial loans does not exceed £10,000 at any time during the tax year.

If the balance reaches £10,001, even temporarily, the general exemption for small loans may be lost for that tax year.

HMRC considers the combined balance of all relevant loans provided to the individual. [GOV.UK reference 14]

Where the loan is not exempt, the company will generally need to report the benefit on form P11D and pay Class 1A National Insurance on the value of the benefit.

The director may also owe Income Tax on the benefit represented by the unpaid interest. [GOV.UK reference 15]

HMRC’s official rate for beneficial loans is 3.75% from 6 April 2026. [GOV.UK reference 16]

Example

A director receives an interest-free loan of £25,000 on 1 May 2026.

They repay it in full on 1 December 2027, before the company’s Section 455 payment deadline.

The repayment may eliminate the Section 455 charge provided it is made within the relevant period and is not affected by the anti-avoidance rules.

However, the director had access to £25,000 without paying the official rate of interest.

A beneficial loan may therefore exist for the relevant period, creating P11D reporting, Class 1A National Insurance for the company and Income Tax for the director.

Repayment within the deadline may avoid Section 455. It does not automatically remove the taxable benefit that existed before repayment.

Paying Interest Does Not Repay the Loan

The director may pay interest to the company at HMRC’s official rate.

Depending on when and how the interest is paid, this may reduce or eliminate the beneficial loan charge.

However, interest and principal are two different things.

If the director owes £40,000 and pays the company £1,500 of interest, the £40,000 principal may remain outstanding.

Section 455 may still apply to that principal if it is not repaid within the relevant deadline.

A frequent misunderstanding is:

“I paid interest to the company, so the loan is fine.”

Paying interest may deal with one part of the problem. It does not clear the debt.

A Loan Below £15,000 Is Not Automatically Exempt

The £15,000 threshold is often misunderstood as a general exemption for directors of small companies.

It is not.

A specific Section 455 exclusion may apply to certain loans of no more than £15,000 made to a full-time director or employee who does not have a material interest in the company.

All the relevant conditions must be satisfied. [GOV.UK reference 17]

For a director who owns and controls their limited company, this exclusion is generally unavailable.

The following statement is therefore dangerous:

“The balance is below £15,000, so Section 455 does not apply.”

The £10,000 beneficial loan threshold and the £15,000 Section 455 exclusion are entirely different rules.

One does not replace the other.

What Happens When the Loan Is Written Off?

Sometimes the company decides that the director will not repay the loan and formally releases or writes off the debt.

This may allow the company to obtain relief from Section 455, but it does not mean the director receives the money tax-free.

A loan to a participator that is released or written off is generally included in the individual’s income and may be treated as a distribution for tax purposes.

Separately, where the individual is a director or employee, reporting obligations and Class 1 National Insurance may arise on the amount written off. [GOV.UK reference 18]

The write-off must be considered from several perspectives, including the director’s Income Tax, National Insurance, Section 455 relief, distributable reserves, company law, the financial condition of the business and the accounting treatment.

Writing off the loan may move the tax cost from the company to the individual. It does not necessarily make the tax disappear.

How Is Section 455 Recovered?

Where Section 455 has been paid, the company may claim relief after the loan is repaid, released or written off.

However, HMRC does not refund the tax on the date the director repays the money.

Relief generally becomes available nine months and one day after the end of the accounting period in which the loan was dealt with.

The claim must also be made within the statutory time limit, generally four years from the end of the financial year in which the repayment, release or write-off occurred.

Depending on the timing, the company may claim through CT600A or the L2P procedure. [GOV.UK reference 6]

Cash-Flow Example

The company pays:

£40,000 × 35.75% = £14,300 Section 455

The director later repays the principal.

The company does not automatically receive the £14,300 back immediately.

It may have to wait until the statutory relief date and submit the claim correctly.

During that period, the cash remains unavailable to the business.

For a small company, £14,300 could represent a VAT payment, one month’s wages, a deposit for a vehicle, materials required for a contract or the financial reserve separating a difficult trading period from insolvency.

That is the difference between a tax that is “recoverable” in theory and a genuine financing cost in practice.

Company Law: Tax Treatment Is Not the Entire Story

A director’s loan may be reported correctly for tax purposes and still raise issues under company law.

In general, a loan made to a director may require approval from the company’s members, subject to statutory exceptions.

The documentation may need to explain the nature of the transaction, its value, its purpose and the company’s potential liability.

An unauthorised loan may be voidable in certain circumstances. [GOV.UK reference 19]

In a company with one director and one shareholder, these formalities may appear artificial.

They remain important.

A significant director’s loan should, where appropriate, be supported by board minutes, shareholder approval, a loan agreement, an agreed interest rate, repayment terms, the purpose of the transaction and any security provided.

Paying Section 455 does not make an improperly authorised loan lawful.

Similarly, company approval does not remove the tax obligations.

The Real Risk Often Appears During Insolvency

While the company is profitable, an overdrawn DLA may appear to be a problem that can be dealt with “next year”.

In insolvency, the position changes.

The amount owed by the director is an asset of the company.

A liquidator must pursue company assets for the benefit of creditors and may demand repayment of the director’s loan.

The fact that the director used the money for family expenses, a property or other personal assets does not change the nature of the debt.

The Insolvency Service confirms that a director’s loan remains repayable during insolvency and may be legally pursued by the liquidator. [GOV.UK reference 7]

Example

The director has an overdrawn DLA of £90,000.

The company owes money to HMRC, subcontractors and suppliers and enters liquidation.

The director cannot simply argue:

“It was my company, so I took my own money.”

The company was a separate legal person.

The £90,000 is a company asset and may be pursued to pay its creditors.

If the director cannot repay it, what began as an accounting issue within the company may become a serious personal financial problem.

This is the clearest reason why a DLA should not be used as a permanent personal overdraft.

A Complete Example

Assume that EXAMPLE SERVICES LTD has an accounting year ending on 31 March 2027.

The director is also the sole shareholder.

During the year, the director withdraws:

£10,000 for personal expenditure in May 2026

£14,000 for a vehicle deposit in August 2026

£8,000 through personal bills paid using the company card

At 31 March 2027, the DLA is overdrawn by:

£32,000

All withdrawals were made after 6 April 2026, so the applicable Section 455 rate is 35.75%.

If the balance is not cleared by 1 January 2028:

£32,000 × 35.75% = £11,440

The company must report the loan on CT600A.

Because the balance exceeded £10,000 during the tax year, the beneficial loan rules must also be considered.

If the director did not pay interest at HMRC’s official rate, P11D reporting, Class 1A National Insurance and Income Tax on the benefit may arise.

The company has £22,000 of distributable profits and can legally declare a dividend of that amount.

One possible strategy would be to declare a valid dividend of £22,000 and credit it to the DLA, repay the remaining £10,000 personally before the deadline, report the dividend in the correct tax year, calculate the beneficial loan up to the date the balance was cleared and complete CT600A because the loan existed at the year-end.

This strategy may avoid the £11,440 Section 455 charge.

However, it is not tax-free.

The director may owe dividend tax on the £22,000, while the company may still have beneficial loan obligations for the period before the account was cleared.

Professional analysis should not stop at the question:

“How do we avoid Section 455?”

The correct question is:

“Which option produces the best legal, tax and cash-flow result for both the company and the director?”

Sometimes the answer is a dividend.

Sometimes it is a cash repayment.

In other circumstances, it may be a bonus.

There may also be situations in which temporarily paying Section 455 is less expensive than forcing heavily taxed remuneration, provided the company can afford the cash-flow impact and the loan is genuinely managed and recoverable.

That is the level at which the decision should be made.

The Most Dangerous Myths About Director’s Loan Accounts

“It is my company, so it is my money.”

You own the shares in the company. You do not directly own the balance in its bank account.

“We will convert all withdrawals into dividends when the accounts are prepared.”

That is possible only where sufficient distributable profits exist, the relevant share rights are respected and a dividend is legally declared. A dividend cannot be backdated.

“The loan is below £15,000, so it is exempt.”

The exclusion is subject to strict conditions and will generally not protect a controlling director-shareholder.

“I repaid the money for one month.”

The bed-and-breakfasting rules may neutralise a temporary repayment followed by a new withdrawal.

“The company paid Section 455, so I no longer owe the money.”

The tax does not cancel the principal debt.

“I paid interest, so Section 455 does not apply.”

Interest may reduce the beneficial loan charge. It does not repay the principal.

“We will close the company and the loan will disappear.”

During insolvency or liquidation, the liquidator may pursue the outstanding balance.

What a Proper Control System Looks Like

A well-managed DLA should not be reviewed only once a year.

It should be reviewed monthly so that personal payments and genuine business expenditure can be separated while the director still remembers the purpose of each transaction.

Every quarter, the company should check the highest balance during the period, the £10,000 beneficial loan threshold and the interest charged or paid.

Before the year-end, the projected DLA position should be estimated together with available distributable profits and the director’s genuine ability to repay.

Immediately after the year-end, the exact nine-month-and-one-day deadline should be calculated and a documented plan agreed.

Waiting until the annual accounts are close to their filing deadline is not sufficient. By that stage, much of the planning window may already have been lost.

Essential Checks Before the Accounts Are Finalised

The director and accountant should be able to identify the balance of each director’s DLA, the transactions that created the balance, withdrawals made before and after 6 April 2026, the highest balance during each tax year, interest paid and the date of payment, the exact nine-month-and-one-day deadline, available distributable profits, remuneration processed through payroll and any repayments or new loans falling within the anti-avoidance periods.

They should also determine whether CT600A, P11D reporting or a Section 455 relief claim is required and whether the director could repay the full debt if the company became insolvent.

If these matters cannot be demonstrated, the DLA is not yet under control.

Final Verdict: A DLA Is a Financial Instrument, Not an Informal Way to Take Money From the Company

A Director’s Loan Account can be entirely legitimate.

A director may finance the company.

The company may provide a temporary loan.

Business expenses paid personally may be reimbursed.

An overdrawn balance may be cleared through repayment, a valid dividend or properly processed remuneration.

The risk arises when the DLA is used without limits, without documentation and without a genuine repayment strategy.

The essential rules are straightforward:

Company money is not automatically the director’s money.

An overdrawn DLA is a personal debt owed to the company.

The Section 455 rate is 33.75% for loans advanced between 6 April 2022 and 5 April 2026.

For loans advanced from 6 April 2026, the rate is 35.75%.

Repayment within nine months and one day may avoid the tax, but CT600A may still be required.

The beneficial loan rules are a separate obligation.

A dividend can clear the DLA only where it is lawful and supported by distributable profits.

A temporary repayment may be neutralised by the anti-avoidance rules.

Section 455 may be recoverable, but the company does not receive the money back immediately.

During insolvency, a liquidator may demand full repayment of the balance.

The golden rule is:

Do not withdraw money from the company until you know whether it represents salary, a dividend, reimbursement or a loan.

A decision made before the transfer may take only a few minutes.

A correction attempted after the year-end may cost 35.75% of the amount withdrawn, together with potential Income Tax, National Insurance, interest and loss of access to the company’s cash.

How DCTaxAgent Can Help

DCTaxAgent can review the Director’s Loan Account before the year-end, identify personal withdrawals, calculate the Section 455 exposure at the correct rate and compare the available repayment, dividend and remuneration options.

The review may include a separate reconciliation for each director, analysis of beneficial loans, calculation of official interest, preparation of CT600A and P11D, consideration of the anti-bed-and-breakfasting rules and submission of a Section 455 relief claim after repayment.

The objective is not merely to correct the account at the end of the financial year.

The objective is to prevent a tax liability that could have been avoided through a decision made at the right time.

WhatsApp: 07587 532646
Website: www.dctaxagent.co.uk

Disclaimer

This article is provided for general informational and educational purposes.

It does not constitute tax, accounting, legal, insolvency or company-law advice tailored to a particular company or individual.

The correct treatment depends on the date of each withdrawal, the director’s status, the shareholding structure, accounting period, tax year, distributable profits, interest paid, company documentation, subsequent transactions and the financial position of the business.

The rates and rules presented are those stated as applicable in July 2026. The position should be checked before submitting CT600, CT600A, P11D, P11D(b), Self Assessment or a claim for relief.

References

1. GOV.UK — Director’s loans: Overview

2. HMRC Company Taxation Manual — Close companies: broad definition

3. HMRC COTAX Manual — CT600A supplementary page and relief claims

4. HMRC Company Taxation Manual — Loans to participators and benefits conferred

5. HMRC Enquiry Manual — Section 455 and bed-and-breakfasting

6. GOV.UK — Director’s loans: If you owe your company money

7. Insolvency Service — Fact sheet: Director’s Loan Accounts

8. HMRC Company Taxation Manual — Close company tests

9. HMRC Company Taxation Manual — Associates

10. GOV.UK — Changes affecting the Corporation Tax online service

11. GOV.UK — Taking money out of a limited company

12. HMRC Company Taxation Manual — Bed-and-breakfasting 30-day rule

13. HMRC Company Taxation Manual — Arrangements rule

14. GOV.UK — Exempt employee loans

15. GOV.UK — Reporting and paying tax on employee loans

16. HMRC Employment Income Manual — Official rate for beneficial loans

17. HMRC Company Taxation Manual — Exclusion for certain loans

18. HMRC Savings and Investment Manual — Loans written off

19. Insolvency Service — Money owed to an insolvent company