Wenzo guidesWhat is a director’s loan account?
A director’s loan is money you, or close family, take from your company that is not salary, a dividend, an expense repayment, or money you previously paid in or lent to the company.
GOV.UK’s guide to director’s loans says you must keep a record of money you borrow from or pay into the company. That record is the director’s loan account, and its balance at the year end goes on the balance sheet in your annual accounts.
The account is overdrawn if you owe the company, and in credit if the company owes you. The tax rules are different for each.
What happens if I owe the company money?
If you are a shareholder as well as a director and the loan is still outstanding 9 months after the end of the company’s Corporation Tax accounting period, the company pays a temporary Corporation Tax charge on the amount outstanding. This is under section 455 of the Corporation Tax Act 2010, and the loan is shown on the CT600A supplementary page of the Company Tax Return.
Is your director’s loan account a puzzle?
Send your bank statements and records as they are, and we’ll prepare your accounts and Company Tax Return with nothing filed until you approve. From £199, bookkeeping included, paid when you approve.
Request a free callbackWhat is the section 455 rate?
The rate follows the dividend upper rate for the tax year the loan is made, as set out in HMRC’s Company Taxation Manual at CTM61505:
- Loans made 6 April 2016 to 5 April 2022: 32.5%
- Loans made 6 April 2022 to 5 April 2026: 33.75%
- Loans made on or after 6 April 2026: 35.75%
The charge is due 9 months and 1 day after the end of the accounting period, the same day as the company’s Corporation Tax, with interest added if it is paid late. Our CT600 deadline guide explains that date.
What does that look like in practice?
As an illustrative example, say £20,000 is lent on or after 6 April 2026 and the accounting period ends 31 March 2027. If it is repaid in full by 31 December 2027, there is no section 455 charge, but the loan still appears on the CT600A. If it is still outstanding on 1 January 2028, the charge is £20,000 × 35.75% = £7,150, which is payable with the Corporation Tax.
Can the company get the tax back?
Yes. Once the loan is repaid, written off or released, the company can reclaim the section 455 tax, but not any interest charged on it.
- The loan is repaid, written off or released.
- Wait until 9 months and 1 day after the end of the accounting period in which the loan was repaid. HMRC will not repay it before then.
- Make the claim within 4 years. Within 2 years of the period when the loan was made, use form CT600A. After that, use form L2P.
Are there any personal tax points?
- If you owe the company more than £10,000 at any time in the year, GOV.UK says the loan is treated as a benefit in kind, with National Insurance for the company and the loan reported on your Self Assessment tax return.
- If you pay the company interest below HMRC’s official rate, the difference can also be a taxable benefit.
- If the company writes the loan off, Class 1 National Insurance is deducted through payroll and you pay Income Tax on it through Self Assessment.
What if I lend the company money?
The company does not pay Corporation Tax on money you lend it, and it can repay you without a tax charge.
If you charge interest, the interest is a business expense for the company and income for you. The company pays you the interest less basic rate Income Tax of 20% and reports that tax to HMRC each quarter on form CT61.
How can Wenzo help?
Bookkeeping is included in our £199 and £499 packages, so we record money you take out of or pay into the company as we go and show the year-end director’s loan balance in your accounts.
If the account is overdrawn, we point this out while you can still repay before the 9-month date. We include the CT600A page with your Company Tax Return where it is needed, and you approve the figures before we file.
See the Corporation Tax return service or bookkeeping, read about Corporation Tax rates and salary or dividends, or call us on 020 7123 9335.
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