S455 Tax Rate: What UK Directors Need To Know

Director loan accounts can be useful, but they can also create unexpected tax charges if they are not managed properly. For many owner managed businesses, the issue starts simply. A director takes money from the company that is not salary, dividends or an expense repayment. Over time, those withdrawals build up and the director loan account becomes overdrawn. That is when the s455 tax rate becomes important.

In this guide, we explain what s455 tax is, when it applies, the current s455 tax rate, how repayments work and what directors can do to avoid unnecessary cash flow pressure.

What Is S455 Tax?

S455 tax is a tax charge that can apply when a close company lends money to a participator, such as a shareholder or director shareholder.

It is named after section 455 of the Corporation Tax Act 2010. The legislation applies where a close company makes a loan or advance to a relevant person who is a participator, or an associate of a participator. The tax charge is based on the loan or advance made by the company.

In practical terms, s455 tax often affects small limited companies where a director shareholder has an overdrawn director loan account.

This can happen when a director takes money from the company that is not properly treated as:

• Salary
• Dividends
• Reimbursed expenses
• Pension contributions
• Repayment of money owed by the company to the director

If the director owes money to the company and the loan is not cleared on time, s455 tax may become payable.

What Is The Current S455 Tax Rate?

The s455 tax rate is linked to the dividend upper rate for the tax year in which the loan or advance is made. HMRC’s Company Taxation Manual confirms that for loans made on or after 6 April 2016, the rate follows the dividend upper rate specified in income tax legislation.

For loans made from 6 April 2026, the s455 tax rate is 35.75%, because the dividend upper rate increased to 35.75% from 6 April 2026.

For loans made before 6 April 2026, the previous s455 tax rate may apply. For example, loans made from 6 April 2022 to 5 April 2026 were generally charged at 33.75%. This means the date of the loan matters.

S455 Tax Rate Example

If a company makes a director loan of £20,000 on or after 6 April 2026 and the loan is still outstanding at the relevant deadline, the s455 tax charge would be:

• Loan outstanding: £20,000
• S455 tax rate: 35.75%
• S455 tax payable: £7,150

This is a significant cash flow cost for the company, even though the tax may later be reclaimed if the loan is repaid, released or written off.

When Does S455 Tax Apply?

S455 tax can apply when:

• The company is a close company
• The company makes a loan or advance to a participator
• The loan remains outstanding after the relevant deadline
• The loan has not been repaid, released or written off in time

A close company is broadly a company controlled by five or fewer participators, or by its directors. Many owner managed limited companies fall within this definition.

A participator is usually someone with an interest in the company, such as a shareholder. In many small companies, the director and shareholder are the same person.

What Is The S455 Tax Deadline?

The key deadline is linked to the company’s Corporation Tax payment date.

S455 tax is generally due if the loan is still outstanding nine months and one day after the end of the company’s accounting period. HMRC guidance confirms that the due date for s455 tax is aligned with the due date for mainstream Corporation Tax.

For example:

• Company year end: 31 March 2026
• Corporation Tax payment deadline: 1 January 2027
• Director loan still outstanding at that date: s455 tax may be due

This is why director loan accounts should be reviewed before the year end and again before the Corporation Tax payment deadline.

Is S455 Tax The Same As Corporation Tax?

S455 tax is paid through the company tax system, but it is not the same as normal Corporation Tax on profits. Corporation Tax is charged on taxable company profits. S455 tax is a separate charge linked to loans made to participators.

That distinction matters because s455 tax is often temporary. If the loan is later repaid, released or written off, the company may be able to claim relief. However, while the tax is with HMRC, the company has lost access to that cash. For growing businesses, this can be a real pressure point.

Can S455 Tax Be Reclaimed?

Yes, in many cases s455 tax can be reclaimed once the loan has been repaid, released or written off.

Gov.uk confirms that close companies or their agents can claim relief for loans to participators that have been repaid, released or written off.

However, the timing of the reclaim is important. The company does not usually get the money back immediately after the director repays the loan. Relief is tied to the accounting period in which the repayment, release or write off takes place and this can mean the company’s cash is tied up for longer than expected.

Example Of Reclaiming S455 Tax

A company has a 31 March year end.

The director loan is not repaid by 1 January 2027, so the company pays s455 tax.

The director later repays the loan in February 2027.

The company may be able to claim relief, but the timing of repayment and the accounting period rules mean the refund may not be immediate.

This is why it is better to prevent the s455 charge where possible, rather than relying on a later reclaim.

How Director Loan Accounts Become Overdrawn

An overdrawn director loan account means the director owes money to the company.

This can happen when:

• The director takes personal payments from the company bank account
• Dividends are paid without enough profits
• Personal costs are paid by the company
• Cash withdrawals are not recorded properly
• Payments are made before payroll or dividends are planned
• Expenses are not supported by receipts
• The director expects profits to catch up later, but they don’t

The issue is not always caused by deliberate tax planning, often, it is caused by poor records or a lack of monthly review.

Common S455 Tax Mistakes

S455 tax problems are often avoidable.

Common mistakes include:

• Assuming all director withdrawals are dividends
• Taking money before checking retained profits
• Forgetting the nine month deadline
• Leaving the director loan account unreconciled until year end
• Using the company bank account for personal spending
• Not budgeting for the s455 tax rate
• Repaying a loan and then borrowing the money again too quickly
• Not recording board minutes and dividend vouchers
• Ignoring P11D benefit in kind issues where interest is not charged

Director loan accounts should not be left until the annual accounts are prepared. By then, the options may be more limited.

What About Repaying And Reborrowing?

Directors sometimes try to repay a loan shortly before the deadline, then take the money out again soon afterwards.

HMRC has anti avoidance rules designed to stop arrangements that are mainly used to avoid the s455 charge. This means repayment and reborrowing needs careful handling. A repayment should be genuine, properly recorded and not simply part of a circular arrangement.

If you are planning to clear a director loan account close to the deadline, speak to your accountant before moving the money.

How To Reduce The Risk Of S455 Tax

The best way to manage s455 tax is to keep director loans under control throughout the year.

Practical steps include:

• Review the director loan account every month
• Agree a clear salary and dividend plan
• Check profits before voting dividends
• Keep personal and company spending separate
• Record expenses promptly
• Use dividend vouchers and board minutes
• Set a reminder before the nine month deadline
• Avoid repeated borrowing and repayment patterns
• Speak to your accountant before large director withdrawals

A well thought out director pay strategy should reduce the risk of unexpected s455 tax.

How Agile Accountants Can Help

At Agile Accountants, we support limited companies across the UK with practical, year round accounting and tax advice.

For director shareholders, s455 tax is usually part of a bigger picture. It connects with salary planning, dividends, Corporation Tax, bookkeeping, cash flow and personal tax.

We can help you:

• Review your director loan account
• Calculate the potential s455 tax charge
• Plan salary and dividends properly
• Check whether dividends are supported by profits
• Prepare Corporation Tax returns and CT600A pages
• Claim relief where s455 tax can be reclaimed
• Improve monthly bookkeeping and reporting

For busy founders, the aim is simple: keep director withdrawals clear, avoid unnecessary tax charges and protect company cash flow.

Final Answer: What Is The S455 Tax Rate?

The s455 tax rate is linked to the dividend upper rate for the tax year in which the loan is made.

For loans made from 6 April 2026, the s455 tax rate is 35.75%. For loans made from 6 April 2022 to 5 April 2026, the rate was generally 33.75%.

S455 tax can apply when a close company lends money to a participator, such as a director shareholder, and the loan is not repaid by the relevant deadline.

Although s455 tax may be reclaimable when the loan is repaid, released or written off, it can still create a major cash flow issue for the company.

At Agile Accountants, we help owner managed businesses and fast growth start ups manage director loan accounts, plan tax efficient pay and stay compliant with HMRC. Contact us today if you need help reviewing your director loan account or s455 tax position.