S455 Tax Rates & Directors’ Loan Account

In this blog, we’ll be discussing: what is S455 tax, what are the S455 tax rates, what is the director’s loan account, and when a company needs to offer money to its directors. Before delving deep into other details, let’s kick off with what exactly Section 455 tax is!

What is the S455 Tax?

Directors can lend and borrow money from companies that are operated personally or by family. When a director of a company borrows from the company, the borrowed money is recorded in a director’s loan account.

The director may either clear the loan by paying back money taken from the company or by crediting dividends or salary to the account.

In case, the director is unable to clear his loan account and can’t pay it back within nine months at the end of the year, then the company is liable to pay an amount of corporation tax known as S455 tax. Let’s find out the S455 tax rates!

What are the S455 Tax Rates?

Currently, S455 tax rates levied on the loans provided to participators (e.g. shareholders or loan creditors) are linked to the dividend upper rate, which is 33.75% onward from 5 April 2023. Earlier it was 32.5%.

It is done to prevent individuals from getting an unfair tax advantage by taking loans from their companies instead of dividends or remunerations.

Directors’ Loan Account

It is an account of the financial records of the company that keeps track of all the transactions between a director and the business. This account can either be debit or credit. If it’s debit, the director needs to pay money to the company.

On the other hand, if it’s credit, the company needs to pay money to the director. In the former case, where the director owes money to their company, it is called an overdrawn director loan account.

When Does a Company need to Offer money to its Directors?

A company would permit a director to get a loan from it if the following conditions apply:

• Businesses need to comply with the 2006 Companies Act and Corporation’s articles of association
• The business should be financially stable
• The money required to fulfil the company’s spending cannot be over £50,000
• If the business turnover is less than £10,000, permission from a shareholder is usually not required
• If the business turnover is over £10,000, shareholder consent is required through an ordinary resolution

How Accotax can Help?

If you are experiencing difficulty with corporation tax, dividend tax increase, S455 tax rates or looking for advice to reclaim S455 tax or other tax-related matters, contact our qualified accountants and tax experts to sort out all your concerns.

We offer expert support on the preparation and submission of your business accounts and self-assessment tax returns to HMRC.

Last Words

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.