Borrowing from your own company is legal, but once the loan goes over £10,000 at any point in the tax year, a cheap or interest-free loan becomes a benefit in kind. That is a separate charge from s455, and it catches directors who only watch the year-end balance.
Written by James Whitfield · Last checked 18 October 2026 · Checked against 2026/27 HMRC rates · Editorial standards · Methodology
If your director's loan is over £10,000 at any time in the 2026/27 tax year and you pay less than HMRC's official rate of interest (3.75% from 6 April 2026), the difference is a taxable benefit in kind. You pay income tax on it at your marginal rate, the company pays 15% Class 1A National Insurance, and it goes on a P11D by 6 July 2027.
On a £25,000 interest-free loan all year the benefit is £937.50: £375 of tax for a higher-rate director and £140.63 of Class 1A for the company. This is on top of any s455 tax if the loan is still outstanding 9 months after the company's year end.
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The test is the balance during the tax year, not on the balance sheet date. If the total of all your cheap or interest-free loans from the company never goes above £10,000 between 6 April and 5 April, there is no benefit.2 Go over £10,000 for even one day and the whole loan is in charge for the year, not just the excess.
Your director's loan account counts as a loan whenever it is overdrawn: personal spending on the company card, drawings taken before a dividend is declared, or a deliberate loan. Expense reimbursements and properly declared dividends are not loans.
The benefit is the interest you would have paid at the official rate, less any interest you actually paid in the tax year. HMRC accepts two methods: the normal averaging method, which takes the average of the balance at the start and end of the tax year, and the precise method, which works day by day.2 Either you or HMRC can insist on the precise method if the result is materially different, which matters when a large loan is taken and repaid within the year.
The official rate for 2026/27 is 3.75%, the same as 2025/26.1 HMRC can change it during the year, so check the rate for each period if your loan is large.
Sam, a director with £60,000 of other income, borrows £25,000 from the company on 6 April 2026 and repays nothing during the tax year. No interest is charged.
| Loan outstanding all year | £25,000.00 |
| Interest at the official rate (3.75%) | £937.50 |
| Interest paid by Sam | £0.00 |
| Benefit in kind on P11D | £937.50 |
| Sam's income tax at 40% | £375.00 |
| Company's Class 1A NI at 15% | £140.63 |
| Total yearly cost of the benefit | £515.63 |
If Sam paid the company £937.50 of interest instead, there would be no benefit in kind and no Class 1A. The interest is taxable income for the company, and Sam pays it from taxed income, so it is not automatically cheaper; it is simpler. If the loan is still unpaid 9 months and 1 day after the company's year end, the company also pays s455 of £8,937.50 (35.75%), refundable once Sam repays.
After the tax year ends, the company reports the benefit on a P11D for the director and a P11D(b) for the Class 1A total, both by 6 July 2027 for 2026/27.3 The Class 1A is paid by 22 July 2027 if paid electronically. The director's tax is usually collected through a tax code adjustment or the Self Assessment return.
Keep the balance at £10,000 or less at all times, not just at the year end. Clear the account with a properly declared dividend or a salary payment through payroll before it crosses £10,000.
Alternatively, charge interest at the official rate or above and actually pay it during the tax year. Document the loan in a board minute with the interest rate and repayment terms.
Watch the 30-day rule if you repay £5,000 or more to dodge s455 and then borrow again: that repayment can be ignored for s455 purposes. It does not change the benefit-in-kind calculation, which looks at the balance throughout the year.
Only if the total of your cheap or interest-free loans from the company goes over £10,000 at any time in the tax year. Then the interest you have not paid at the official rate (3.75% for 2026/27) is a taxable benefit.
3.75% from 6 April 2026, the same as 2025/26. HMRC can change it during the tax year.
The whole loan. The £10,000 is a threshold, not an allowance: once it is crossed, interest on the full balance counts.
The company, at 15% of the benefit. The director pays income tax on the benefit; there is no employee NI on it.
No. s455 is a company tax of 35.75% on loans made from 6 April 2026 that are still unpaid 9 months and 1 day after the year end, refundable on repayment. The benefit-in-kind charge is a personal tax on the interest saved. A large overdrawn loan can trigger both.
The rates and rules on this page are drawn from the official UK government sources below, using the confirmed 2026/27 figures. Each link opens the relevant HMRC, GOV.UK or Companies House page in a new tab.
The limited company tax calculator turns this guidance into a concrete estimate for corporation tax, dividends and personal take-home, based on 2026/27 HMRC rates.