If you run a limited company and you have taken money out that is not salary, dividends or a repaid expense, you may have a director's loan. Leave it unpaid for too long and HMRC charges your company a tax called S455.
It catches a lot of directors by surprise. The good news is the charge is temporary and fully reclaimable once you repay the loan. The catch is the timing, and the anti-avoidance rules that stop you gaming it.
This is a plain-English glossary entry on what S455 tax is, the rate, when it bites, and how to get it back. It is written for directors of UK close companies (most small owner-managed limited companies). If you want this handled properly, that is part of our corporation tax services.
What is S455 tax? (definition)
S455 tax is a Corporation Tax charge on a "close company" (broadly, a company controlled by five or fewer participators, or by its directors) when it lends money to a director or shareholder and the loan is still outstanding 9 months and 1 day after the end of the company's accounting period.
The charge is set at 33.75% of the outstanding loan for loans made on or after 6 April 2022. It is named after section 455 of the Corporation Tax Act 2010. Crucially, it is not a permanent tax. Your company gets it back once the loan is repaid, written off or released, under section 458.
How does S455 tax work?
A director's loan account (DLA) records what you owe the company and what the company owes you. If you draw out more than you put in, and that excess is not salary or a dividend, the account is overdrawn. That overdrawn balance is a loan from the company to you.
HMRC gives you a grace period. If you clear the overdrawn balance within 9 months and 1 day of the end of your Corporation Tax accounting period, there is no S455 charge. Miss that deadline and your company pays S455 tax on whatever is still outstanding.
The deadline is the same date your Corporation Tax for that period falls due. So S455 is paid as part of, and at the same time as, your normal Corporation Tax bill.
One important detail. The charge is based on the loan made in the accounting period, not just a snapshot of the year-end balance. New advances are looked at individually, which matters once the anti-avoidance rules below come into play.
What is the S455 tax rate for 2026/27?
The S455 rate is tied to the dividend upper rate, and it has changed over the years. For any loan made on or after 6 April 2022, the rate is 33.75%. That is the rate that applies to a director's loan outstanding in the 2026/27 tax year.
| When the loan was made | S455 rate |
|---|---|
| On or after 6 April 2022 | 33.75% |
| 6 April 2016 to 5 April 2022 | 32.5% |
| Before 6 April 2016 | 25% |
Source: HMRC Company Taxation Manual CTM61505 and the gov.uk director's loans guidance.
So if you owe the company £20,000 and it is still outstanding past the deadline, your company pays £6,750 in S455 tax (£20,000 x 33.75%). That is a real cash cost to the company until you repay the loan, even though you get it back later.
How do you reclaim S455 tax?
This is the part that reassures most directors. S455 is fully refundable. Once you repay the loan, write it off or have it released, your company can reclaim the S455 tax it paid.
The timing mirrors the charge. You can claim the refund from 9 months and 1 day after the end of the accounting period in which the loan was repaid, written off or released. You cannot claim it sooner, even if you repaid the loan months ago.
You make the claim using form L2P, either online or alongside your Company Tax Return. You have up to 4 years from the end of the accounting period in which the loan was repaid to make the claim, so do not let an old refund slip away.
Two things to keep in mind. First, the refund is of the S455 tax only. You cannot reclaim any interest your company paid on late Corporation Tax. Second, if you only repay part of the loan, you only reclaim the S455 attributable to the part repaid.
What are the "bed and breakfasting" rules?
Some directors used to repay the loan just before the 9-month deadline, then re-borrow the same money days later. HMRC closed this down with two anti-avoidance rules. If they bite, your "repayment" is ignored for S455 purposes and the charge stands.
The 30-day rule. If there are repayments of £5,000 or more, and within any 30-day period the same person takes new loans of £5,000 or more in a later accounting period, the repayment is treated as repaying the new loan rather than the old one. The old loan stays charged to S455.
The arrangements rule. This is a backstop with no 30-day window. It applies where £15,000 or more is outstanding before a repayment, and at the time of repayment there were arrangements to make new loans of at least £5,000. "Arrangements" is deliberately broad.
The practical takeaway is simple. A genuine, permanent repayment clears the loan and unlocks your refund. A repayment that is really just a temporary shuffle to dodge the deadline does not work.
Is there a benefit-in-kind on a director's loan too?
Yes, and directors often miss this. S455 is a company-level charge. Separately, if your overdrawn director's loan exceeds £10,000 at any point in the tax year and you do not pay your company interest at HMRC's official rate, you have a taxable benefit-in-kind as an employee.
That benefit goes on a P11D, and your company pays Class 1A National Insurance on it. So a large, interest-free director's loan can trigger both S455 (on the company) and a benefit-in-kind charge (on you personally). They are two different taxes on the same loan.
If the loan stays under £10,000 across the whole year, the benefit-in-kind point usually falls away, but the S455 charge can still apply to whatever is outstanding past the deadline. The two thresholds are not the same, which is exactly why this trips people up.
Illustrative example: an overdrawn director's loan account
Illustrative example. Suppose Daniel owns and runs a limited company with a 31 March 2026 year-end. During the year he draws £30,000 from the company that is not salary or dividends, so his director's loan account is £30,000 overdrawn at the year-end.
His Corporation Tax deadline is 1 January 2027 (9 months and 1 day after 31 March 2026). By that date he has repaid £18,000, leaving £12,000 outstanding.
Because £12,000 is still owed past the deadline, his company pays S455 tax of £4,050 (£12,000 x 33.75%). That sits on top of, and is paid with, the company's normal Corporation Tax.
Daniel then repays the final £12,000 in June 2027. That repayment lands in the year ending 31 March 2028, so his company can reclaim the £4,050 from 1 January 2029 (9 months and 1 day after that year-end), using form L2P. The S455 was a cash-flow cost for roughly two years, not a permanent one.
These figures are illustrative. Your own position depends on your loan balances, your year-end and the timing of repayments.
Frequently asked questions
What is S455 tax in simple terms?
It is a 33.75% Corporation Tax charge on a close company when a director or shareholder loan is not repaid within 9 months and 1 day of the company's accounting period end. It is temporary and fully reclaimable once the loan is repaid.
Is S455 tax refundable?
Yes. Once the loan is repaid, written off or released, your company can reclaim the S455 tax. You claim from 9 months and 1 day after the end of the accounting period in which the loan was cleared, using form L2P, within a 4-year time limit.
What is the S455 tax rate?
For loans made on or after 6 April 2022 the rate is 33.75%. It was 32.5% for loans made between 6 April 2016 and 5 April 2022, and 25% before that. The rate tracks the dividend upper rate.
How do I avoid S455 tax?
Repay the overdrawn director's loan, genuinely and permanently, within 9 months and 1 day of your year-end. Repaying then re-borrowing the same money can be caught by the bed and breakfasting rules, so it has to be a real repayment, not a temporary shuffle.
Does S455 apply if I repay the loan in time?
No. If the overdrawn balance is cleared within 9 months and 1 day of the accounting period end, there is no S455 charge on that amount. The charge only applies to what remains outstanding after that deadline.
