Last updated: 14 October 2026
What are the tax consequences of writing off a director’s loan?
If your company writes off a loan you owe it, the amount is treated as income for you. If you’re a shareholder, it’s taxed like a dividend at 10.75%, 35.75% or 39.35% in 2026/27, through Self Assessment. HMRC also treats it as earnings for National Insurance, so Class 1 NIC is due through payroll. The company can’t deduct the write-off from its corporation tax profits, but any section 455 tax it paid on the loan can be reclaimed.
Tax effects at a glance
| For | Effect |
| Director (shareholder) | Taxed as a dividend on their Self Assessment return |
| Director (NIC) | Class 1 employee and employer NIC due through payroll |
| Company (corporation tax) | No deduction for the amount written off |
| Company (s455) | Any s455 tax paid is repayable 9 months after the end of the period of write-off |
The s455 charge
If a director’s loan is still outstanding 9 months and 1 day after the company’s year end, the company pays s455 tax at 35.75% of the loan. This is repaid when the loan is repaid or written off. Writing off the loan stops the s455 charge but creates the personal tax charge above.
Example
Jodie owes her company £20,000 on her director’s loan account. In 2026 the company formally writes it off. Jodie, a higher-rate taxpayer, pays dividend tax of £7,150 (35.75% of £20,000). Her company pays employer NIC of £3,000 (15%), and Jodie pays employee NIC of £400 (2%, as her salary is already above the upper limit). The company can reclaim the s455 tax it had paid on the loan.
Write-off vs dividend vs salary
- Dividend: often cheaper, as no NIC applies, but the company must have distributable profits
- Bonus: taxed as salary but deductible for the company
- Write-off: taxed like a dividend plus NIC, and not deductible
For most directors, voting a dividend to clear the loan is cheaper than writing it off.
Formalities
- The write-off should be documented in a board minute or deed of release
- It should be done when the company is solvent
- Report the write-off on your tax return in the dividend section
Insolvent companies
If the company goes into liquidation, a liquidator can demand repayment of an overdrawn loan. Writing off a loan just before insolvency can be challenged.
Benefit in kind
If the loan was over £10,000 at any point in the tax year and interest-free or cheap, there’s a separate benefit in kind charge, based on the official rate of interest, currently 3.75%.
Common mistakes
- Writing off a loan without a board minute or deed, so HMRC treats it as still outstanding
- Forgetting to put the NIC through payroll
- Claiming the write-off as a deductible expense in the company accounts for tax
- Repaying the loan just before the year end and borrowing it again soon after, which HMRC’s bed and breakfasting rules can ignore
Talk to your accountant before the company’s year end, so the cheapest way of clearing the loan can be chosen.
Frequently asked questions
Can I write off a loan to a non-shareholder director?
Yes, but it’s taxed as employment income.
Does it affect my Personal Allowance?
Yes, it counts as income.
What if the loan is small?
The same rules apply.
Related: the director’s loan tax charge, merging directors’ loan accounts and closing your company.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with director’s loan accounts. See our limited company accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
