If you run a limited company in the UK you may have heard about s455 tax. It often comes up when directors borrow money from their company through a Director’s Loan Account (DLA).
But what exactly is s455 tax?
This guide explains everything you need to know:
- What S455 Tax is,
- How it’s calculated,
- S455 Current Tax Rates, and
- Much More…
Let’s get started!
What is the S455 Tax?
S455 tax (sometimes written as section 455 tax) is a tax charge that applies when a director borrows money from their company and does not repay it promptly. It is designed to stop directors from treating the company’s money as their own personal bank account.
In short: If a director’s loan is left unpaid after a certain period, HMRC applies the s455 tax charge.
S455 is not a permanent tax. It can be reclaimed once the loan is repaid.
Why Does the S455 Tax Exist?
The main purpose of s455 tax is to prevent companies from distributing money to directors in the form of loans instead of dividends or salaries. HMRC wants to ensure tax is paid fairly, so this extra charge discourages directors from keeping long term loans outstanding.
What Are The Current S455 Tax Rates?
The current s455 tax rate is 33.75% (2025). It is linked to the higher dividend tax rate, so if dividend tax changes in future, the s455 rate will change too.
To give you a better idea of what this looks like in real numbers, here are a few examples of how much S455 tax a director would need to pay based on different loan amounts:
Current S455 Tax Rates – With Examples
| Loan Amount | Current S455 Rate (33.75%) | S455 Tax Payable |
| £5,000 | 33.75% | £1,688 |
| £10,000 | 33.75% | £3,375 |
| £20,000 | 33.75% | £6,750 |
| £50,000 | 33.75% | £16,875 |
What Factors Affect S455 Tax?
Not every director’s loan is taxed the same way. A few key factors decide if and how much S455 tax you’ll need to pay:
- Loan balance at year-end
S455 tax is charged on the loan balance still outstanding 9 months after the company’s year end. If you repay it before then, no S455 applies. - Repayments and re-borrowing
If you repay the loan but quickly borrow again, HMRC might see it as “bed and breakfasting” and still apply S455. Timing matters! - Type of borrower
Loans to directors, shareholders, or their close family members can all fall under S455 rules. - Rate changes
The tax rate for S455 matches the higher dividend tax rate. If dividend tax rates change, so does S455. - Company accounting date
Since the 9-month deadline is tied to your company’s year-end, the actual date when tax becomes payable depends on your accounting period.
When Does S455 Tax Need To Be Paid?
S455 tax must be paid 9 months and 1 day after the company’s accounting year end.
Example:
- Company year-end: 31 March 2025
- S455 tax deadline: 1 January 2026
If the loan is repaid before this date, no s455 charge applies.
Can S455 Tax Be Reclaimed?
Yes, you can claim a refund of s455 but only when the director’s loan has been fully repaid, written off, or cleared by dividend or salary.
However, repayment claims can only be made 9 months and 1 day after the end of the accounting period in which the loan was cleared. Also, refunds are not instant. HMRC processes them after the next Corporation Tax return is filed.
What Happens If You Don’t Pay S455 Tax?
Failing to pay section 455 tax on time can lead to:
- HMRC interest charges on late payments
- Possible penalties for non-compliance
- Ongoing cash flow issues, since HMRC won’t refund until all conditions are met
When Does S455 Tax Apply?
You’ll face an s455 tax charge if:
- Your company lends money to a director (or their close family)
- The loan remains unpaid 9 months and 1 day after the company’s year end
- The loan is not covered by exemptions (for example, small loans under £10,000 that are repaid in time)
What Is A Director’s Loan Account (DLA)?
A Director’s Loan Account records all the money directors borrow from or pay into the company.
You need to keep this accurate because:
- If the account is overdrawn beyond £10,000, extra tax implications apply (benefit in kind reporting, P11D).
- It directly determines whether s455 tax will be due.
How Can You Reduce Or Manage S455 Tax?
There are several ways to manage or avoid high s455 charges:
- Repaying loans quickly before the 9-month deadline
- Declaring dividends to clear the loan balance (if profits allow)
- Avoiding excessive borrowing that could trigger ongoing s455 charges
- Plan repayments so you don’t trigger unnecessary tax.
What If There Are Multiple Directors’ Loans?
If more than one director has an overdrawn loan account, s455 tax rates apply to the total of all loans outstanding at year-end. In other words, the s455 charge applies to the combined balance, not separately per individual.
How Does Closing A Company Affect S455 Tax?
If the company is liquidated while director’s loans remain unpaid, the s455 charge is unlikely to be refunded. In some cases, HMRC will treat unpaid director’s loans as income to the director, meaning personal income tax will become payable. Are you looking for professional tech-savvy tax advisors and accountants in the UK to guide you? Contact us now!
Final Thoughts:
So, the current s455 tax rate is 33.75%. It applies when a director’s loan remains unpaid after 9 months. It is also reclaimable, but only once the loan is cleared
The key is good record keeping, forward planning, and paying attention to deadlines. Done right, you can avoid unnecessary s455 charges and keep your company cash flowing smoothly.
Disclaimer: All the information provided in this article on S455 tax rates and Directors’ Loan Account, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.