Your director’s loan is now taxed at 35.75%

A director’s loan account is the most common accident in owner managed companies. Nobody sets one up on purpose. It appears because money left the company without a label, and at the year end it has to be called something.

What actually counts as one

Anything you take out of the company that is not salary, not a dividend, not a repayment of money the company already owed you, and not a legitimate business expense. Personal spending on the company card. A transfer to your own account in a tight month. A dividend voted when there were no distributable profits to vote it from.

The charge, and the rate that changed

If the account is overdrawn, meaning you owe the company, and it is still overdrawn nine months and one day after your accounting year end, the company pays a section 455 charge on the outstanding balance.

• 35.75% for loans made on or after 6 April 2026
• 33.75% for loans made before that date

The rate tracks the dividend upper rate, which is why it moved when dividends did at Autumn Budget 2025. Worth knowing: the gov.uk directors loans page was still showing 33.75% well into 2026, so a search result is not a safe check on this one.

You get it back, but not quickly

Section 455 is a deposit rather than a permanent tax. Repay the loan and the company can reclaim it, using form L2P or the CT600A. The reclaim is not instant, and the money is sitting with HMRC in the meantime. On a £60,000 overdrawn account that is over £21,000 out of the business at exactly the point a business that has an overdrawn loan account tends to need it.

Repaying and redrawing does not work

The obvious move is to clear the balance just before the deadline and take it straight back out afterwards. That is called bed and breakfasting and there is specific anti avoidance for it. Repay £5,000 or more and redraw within 30 days and the repayment is matched against the new advance, so for section 455 purposes nothing was repaid at all.

The second charge people forget

An interest free loan of more than £10,000 at any point in the tax year is also a benefit in kind on you personally, reported on the P11D, with Class 1A National Insurance for the company. Charging the company’s official rate of interest removes it, which is a decision worth taking deliberately rather than discovering in July.

What to do about it

1. Find out what the balance actually is today, not what it was at the last year end.
2. Work back from your year end and put the nine month and one day date in a calendar.
3. Decide the route to clear it: a dividend if there are distributable profits, a bonus if there are not, or a genuine repayment from personal funds.
4. Each route has its own tax. A dividend costs you dividend tax, a bonus costs income tax and National Insurance. Compare the total cost of each, not the headline rates.
5. Then fix the cause, because an account that has been overdrawn once usually goes again.

Getting this right, every year

Tax 4 Pros looks after limited company directors on a fixed monthly fee. Accounts and filings done properly, and the pay, structure and planning decisions looked at before the year end rather than after it. Every package and every price is published, so you can see what you would pay before you speak to anyone.

See the packages and prices, or book a fifteen minute call and we will tell you which one you need, including if that is the cheapest one.

Figures are current for the 2026/27 tax year at the date of publication. The Autumn Budget on 28 October 2026 may change several of them. This is information, not personal advice, and your own facts change the answer.

Written by Sarah Charlton, tax strategist and founder of Tax 4 Pros.