What s455 actually costs — and how a director's loan drifts into it
If a close company lends money to a director and the loan is still outstanding nine months and one day after the end of the accounting period, HMRC charges the company 33.75% of the outstanding amount. It is not a tax on profit. It is a deposit against a balance, and it is entirely avoidable if anyone notices in time.
The problem is that nobody notices. A director's loan account rarely appears as a decision. It accumulates.
What is the section 455 charge?
Section 455 of the Corporation Tax Act 2010 exists to stop owner-managers extracting profit as an untaxed loan instead of salary or dividends. If the loan is repaid, the charge is refundable — but the refund is slow, and the cash has to leave the company in the meantime.
| Point | Detail |
|---|---|
| Rate | 33.75% of the amount outstanding |
| Trigger | Still outstanding nine months and one day after the period end |
| Who pays | The company, not the director |
| Refundable? | Yes, once repaid — but the reclaim is not quick |
On a £40,000 balance that is £13,500 leaving the company. For a small business that is a serious cash event, and it arrives as a surprise.
How does a loan account drift?
Almost never through a single large withdrawal. It builds:
- Personal costs on the company card — fuel, a laptop, a meal — posted to the DLA because nobody is sure where else to put them
- Dividends taken before profit is confirmed, sitting as a loan until the year end decides whether they were legal
- Round-sum drawings that were meant to be salary but never went through payroll
- Expense claims never filed, which would have cleared part of the balance
Each item is small. None triggers a conversation. Twelve months later the balance is five figures and the nine-month clock has already started.
Why does it get missed so often?
Three reasons, and they compound.
The deadline is not the deadline you watch
Firms track filing dates. The s455 clock runs to nine months and one day after the period end, which is usually the corporation tax payment date — but the decision that avoids the charge has to be taken well before that, while the director still has time to repay.
The balance is invisible between year ends
If the DLA is only looked at when the accounts are prepared, you see it once a year — often after the window has closed. By then the only conversation available is how to pay the charge.
The client does not know it is happening
Directors rarely think of the company card as borrowing. Told in January that there is a £13,500 charge because of purchases they made last March, the reaction is understandable: why did nobody say?
What signals a problem early?
The DLA balance itself, watched over time rather than at a point. Specifically:
- A balance that only moves one way. Direction matters more than size — steadily rising means nothing is clearing it.
- A balance that is material against reserves. If repayment would need more than the company holds, the options narrow.
- Distance to the nine-month date. The same balance is routine at month three and urgent at month eight.
- Bed and breakfasting. Repaying just before the deadline and redrawing after can fall foul of anti-avoidance rules, so a cleared-then-redrawn pattern deserves attention.
The options, and when each closes
| Option | When it works |
|---|---|
| Repay in cash | Cleanest. Needs the director to have the money, so it needs notice. |
| Declare a dividend | Only if there are distributable reserves, and it carries its own tax. |
| Process as salary or a bonus | Works, but PAYE and NIC make it expensive. |
| Write it off | Treated as a distribution, taxable on the director. Rarely the best answer. |
| Accept the charge | What happens when nobody saw it coming. |
Notice that every good option needs time. Found in month four, a £40,000 balance is a planning conversation. Found in month ten, it is a bill.
A note on interest
Separately from s455, a loan over £10,000 can create a benefit in kind unless interest is charged at HMRC's official rate. That is a second, smaller exposure that tends to be discovered alongside the first.
Making it a routine rather than a rescue
The fix is not more diligence at year end. It is watching the balance continuously so the conversation happens while options still exist.
Fynvro OS runs a director's loan pattern daily against every connected Xero client, tracking the balance against the nine-month window and flagging it as the date approaches. For this one and for Corporation Tax variance, Arya drafts the client email explaining the position in plain English — ready for a partner to review and send, not sent automatically.
The value is not the alert. It is that the alert arrives in month four.
Frequently asked questions
What is the s455 tax rate?
33.75% of the loan outstanding nine months and one day after the end of the accounting period. It is charged on the company and is refundable once the loan is repaid.
When is a director's loan repayable to avoid s455?
Within nine months and one day of the accounting period end. After that the charge applies to whatever remains outstanding.
Can the s455 charge be reclaimed?
Yes, once the loan is repaid, but the reclaim is not immediate — the timing rules mean the company can be out of pocket for a considerable period.
Does s455 apply to every company?
It applies to close companies, which covers most owner-managed UK companies. Whether a specific arrangement is caught depends on the facts.
What counts as a director's loan?
Money taken from the company that is not salary, a legally declared dividend, or a reimbursed expense. Personal spending on a company card is the most common source.