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The director's loan account is the running ledger of every financial transaction between a director personally and their company that is not salary, dividend or legitimately reimbursed expense. It can be in credit or overdrawn. The tax consequences depend entirely on which direction it moves and how quickly it is resolved.
Last updated May 2026. Written by the LimitedCompanyTaxCalculator.co.uk editorial team and reviewed against current GOV.UK and HMRC guidance. Results are estimates for planning only and are not tax, accounting or financial advice.
When a director takes money from the company that has not been formally declared as salary or dividends, it sits on the director's loan account as a drawing. The DLA records whether the director owes the company money (overdrawn) or the company owes the director money (in credit). A DLA in credit typically arises when the director has put personal money into the company — funding it in the early stages, paying business costs personally, or making a loan to help cashflow.
In practice, many directors do not draw a neat monthly salary — they take cash when they need it, reconcile the position with accountants at year-end, and declare dividends retrospectively to clear the DLA. This is common but carries risk. If the year-end position shows the DLA overdrawn and the dividend cannot lawfully be declared (because distributable reserves are insufficient), the overdrawn DLA becomes a problem.
The DLA is neither salary nor dividend for tax purposes — it is a loan from the company to the director. If the loan is not repaid within the required window, the company faces an additional tax charge on top of its regular corporation tax.
If a director's loan account is overdrawn at the end of the company's accounting year and the balance is not repaid within nine months of that year-end, the company must pay a Section 455 corporation tax charge. The S455 rate is 33.75% of the outstanding overdrawn balance at the nine-month point. This is a cash charge on the company — not on the director personally — and it is in addition to the regular corporation tax bill.
For a company with a £20,000 overdrawn DLA and a December year-end, the nine-month repayment deadline is 30 September of the following year. If £20,000 is still outstanding on that date, the company pays S455 of £6,750 (33.75% of £20,000) on top of its normal corporation tax. The S455 charge can create a significant and unexpected cashflow demand for the company.
Where the overdrawn balance exceeds £10,000 and the company charges the director below HMRC's official rate of interest (currently 2.25% per year), there is also a personal benefit-in-kind charge on the director. The interest shortfall is reported on form P11D and is subject to income tax at the director's marginal rate and employer Class 1A NI at 13.8%. For most directors managing DLAs carefully, this additional charge is avoidable by keeping balances modest or charging the official interest rate.
The S455 charge is refundable once the loan is repaid. HMRC repays the S455 tax nine months after the end of the accounting period in which the loan was cleared. So if the loan is repaid in the year ending December 2026, HMRC refunds the S455 in September 2027. The delay creates a temporary cashflow cost that directors often underestimate when planning to clear an overdrawn DLA.
The 30-day rule exists to prevent artificial repayment and re-drawing. If a director repays £5,000 or more and then re-borrows from the company within 30 days, HMRC treats the overlapping amount as still outstanding for S455 purposes. This anti-avoidance measure targets bed-and-breakfasting arrangements where the DLA is temporarily cleared around the nine-month deadline and immediately re-drawn.
The most practical way to clear an overdrawn DLA is to declare a dividend that credits the director's account with sufficient funds. The dividend must be lawful — supported by distributable reserves — and is subject to dividend tax in the normal way. Alternatively, the director can repay personally from outside funds, which clears the DLA without any further personal tax, or the company can write off the loan which is treated as employment income and taxed accordingly.
The cleanest approach is to ensure that every drawing from the company is formally declared as salary or dividend at the time it is made, rather than treated as a loan. This keeps the DLA near zero and eliminates the S455 risk. In practice, a monthly payroll for salary and quarterly dividend declarations tend to work well for owner-managed companies with consistent profit.
For directors who do draw informally throughout the year, a clear mid-year review — typically after six months — helps identify whether the DLA is building towards a problematic year-end position. If distributable reserves are sufficient, a dividend can be declared mid-year to clear the balance before it becomes an issue.
Document director loans properly in the company's accounting records and board minutes. HMRC inspectors look closely at director loan accounts during compliance checks. An undocumented or inconsistently managed DLA is a red flag that can trigger wider scrutiny of the company's affairs.
A 33.75% corporation tax charge on overdrawn director loan account balances not repaid within nine months of the company's accounting year-end. The charge is paid by the company and is refundable once the loan is repaid, but the refund is delayed by nine months after the repayment year-end.
An anti-avoidance rule that prevents directors from repaying a DLA to avoid S455 and immediately re-borrowing. If a repayment of £5,000 or more is followed by a new loan from the company within 30 days, the overlapping amount is treated as still outstanding for S455 purposes.
HMRC processes the refund nine months after the end of the accounting period in which the loan was repaid. So if the loan is cleared in the year ending December 2026, the refund arrives in September 2027.
Yes, if the company has sufficient distributable reserves to support the dividend. The dividend credits the director's account and reduces or eliminates the overdrawn balance. It is subject to dividend tax in the usual way.
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.