S455 Tax on Directors’ Loans: Rates, Reclaiming, and Write-Offs

The S455 tax on directors’ loans is a Corporation Tax charge that a close company pays when it lends money to a shareholder, director, or someone connected to them, and the loan is still outstanding nine months and one day after the company’s year-end. The rate is 33.75% of the unpaid balance for loans made before 6 April 2026 and 35.75% for loans made on or after that date.¹² The company can reclaim the full amount once the loan is genuinely repaid, released, or written off, so in most cases this is a cash-flow cost rather than a permanent one.

When the Charge Applies

Three things have to line up: a close company, a loan or advance, and a participator (or an associate of one) on the receiving end.¹ A close company is broadly any UK company controlled by five or fewer people, or by any number of its directors, which captures most owner-managed limited companies.³ A participator is anyone with a financial stake in the company, including shareholders and loan creditors. Associates are also caught, so a loan to a director’s spouse, child, parent, business partner, or a connected trust triggers the charge just as a loan to the director would.

The definition of “loan or advance” is deliberately wide. It picks up formal loan agreements, informal cash withdrawals, personal expenses paid by the company on the director’s behalf, and overdrawn director’s loan accounts where the running balance shows the director owing money at year-end. Nothing needs to be labelled as a loan at the time the money moves.

The Small-Loan Exception

Not every loan to a participator attracts the charge. A loan is exempt where all three of these conditions are met:⁴

The loan plus any earlier loans still outstanding totals no more than £15,000.
The borrower works full-time for the company or an associated company (at least three-quarters of normal working hours).
The borrower does not have a material interest in the company.

If the borrower later acquires a material interest while the loan is still outstanding, the exemption drops away and the company is treated as having made a new loan equal to the outstanding balance at that point. Spousal loans are calculated separately, so a director and a spouse who both work full-time can each use their own £15,000 limit without the balances being combined.⁴

How Much It Costs

The rate applied is the one in force when the loan was made, not the one in force when the tax falls due. For loans made between 6 April 2022 and 5 April 2026 the rate is 33.75%.¹ From 6 April 2026 it rises to 35.75%.² The charge is a flat percentage of the loan balance outstanding at the end of the accounting period, with no deductions or offsets.

A director who borrows £50,000 and has not repaid it by the company’s year-end creates an extra Corporation Tax charge of £16,875 at 33.75%, or £17,875 at 35.75% for a loan made on or after 6 April 2026. This is on top of the Corporation Tax the company already owes on its profits.

The Nine-Month Window

The S455 tax is due nine months and one day after the end of the accounting period in which the loan was made, the same date as the company’s normal Corporation Tax payment.¹ For a 31 March year-end, that is 1 January of the following year.

That window matters because it is also the deadline for avoiding the charge altogether. If the director clears the loan in full before the deadline, no S455 tax is payable. A partial repayment reduces the charge proportionally. The loan still needs to be reported on the company’s tax return either way.

Miss the deadline and HMRC charges late payment interest at 7.75% per year, calculated daily from the due date until the tax is paid.⁵ That rate is reviewed periodically, so check the current figure when a payment is coming up.

Reporting the Loan

A close company that has made a loan to a participator has to complete form CT600A, the supplementary page attached to the main Corporation Tax return.⁶ It captures each borrower, their relationship to the company, the date of each advance, and the balance at the end of the period. Where partial repayments have been made, the opening balance, repayments, and closing balance all go on the form.

Keep the documentation clean. Loan agreements, board minutes authorising the loan, bank statements, and repayment records are what HMRC asks for first if an enquiry is opened.

What It Costs the Director Personally

S455 falls on the company, but the borrower has their own tax to worry about. If the outstanding loan exceeds £10,000 at any point during the tax year, the interest-free element becomes a benefit in kind.² One day over the threshold pulls the whole loan into charge for the entire tax year.

The taxable benefit is worked out using HMRC’s official interest rate, which is 3.75% for the 2026-27 tax year.⁷ On a £50,000 loan outstanding for the whole year that produces a benefit of £1,875. The director reports it through Self Assessment and the company reports it on a P11D and pays Class 1A National Insurance.

Paying interest to the company at or above the official rate removes the benefit in kind entirely. Some directors do exactly that to neutralise the personal charge while keeping the loan on the books. The company-level S455 charge on the outstanding balance still applies.

Reclaiming the Tax

Section 458 of the Corporation Tax Act 2010 lets the company reclaim S455 tax once the loan has been genuinely repaid, released, or written off.⁸ The relief is not immediate. It becomes available nine months and one day after the end of the accounting period in which the repayment happened, matching the original payment deadline.²

If the repayment falls within a normal CT600 filing period, the claim is made through the return for that period. Where it falls outside that window, form L2P starts the refund.⁹

There is a hard cut-off. Claims must be made within four years from the end of the financial year in which the loan was repaid or written off, or the tax becomes a permanent cost.⁸ Loans repaid in instalments generate a separate relief entitlement for each repayment, each with its own four-year clock, so record the dates carefully.

Repay-and-Reborrow Rules

HMRC has closed the obvious workaround of repaying just before the deadline and borrowing again shortly after. Two rules block it:¹⁰

The 30-day rule. If the director repays £5,000 or more and takes out a new loan of £5,000 or more within any 30-day period, the repayment is matched against the new loan rather than the original one, and section 458 relief on the earlier loan is not available.¹⁰
The arrangements rule. If the director repays £15,000 or more and there was an arrangement (formal or informal) to re-borrow, the repayment is disregarded regardless of timing.²

Only genuine, permanent repayments qualify for relief. Once the original loan is properly cleared, the company can reclaim the Corporation Tax, but not any interest it paid in the interim.²

Writing the Loan Off

When a close company releases or writes off a director’s loan, two things happen at once. The write-off counts as a repayment for S455, so the company can claim its tax back. On the borrower’s side, the amount released is treated as a distribution and taxed as dividend income at the director’s marginal dividend rate.

Writing off the loan is not a way to escape tax. It moves the burden from a temporary corporate charge to a permanent personal one. For a higher-rate taxpayer the income tax bill on a written-off loan can be significant, so this route only makes sense when the loan is genuinely irrecoverable or when modelling both sides still leaves the outcome preferable.

Penalties for Late Filing and Payment

Filing the CT600 (with the CT600A) late triggers escalating penalties:¹¹

One day late: £100 flat penalty.
Three months late: a further £100.
Six months late: HMRC estimates the Corporation Tax owed and adds a penalty of 10% of the unpaid tax.
Twelve months late: another 10% of the unpaid tax.

Three consecutive late filings turn the £100 flat penalties into £500 each.¹¹

Late payment of the S455 tax itself carries interest at 7.75% per year, running from the due date until the balance is settled.⁵ That interest is not deductible and is not refunded when section 458 relief is claimed. The tax comes back; the interest does not. Paying on time, even when the plan is to reclaim later, avoids that dead cost.

1
Legislation.gov.uk. Corporation Tax Act 2010 – Section 455
2
GOV.UK. Directors Loans – If You Owe Your Company Money
3
GOV.UK. Company Taxation Manual – CTM60060
4
HM Revenue & Customs. Company Taxation Manual – CTM61540
5
HM Revenue & Customs. HMRC Interest Rates for Late and Early Payments
6
HM Revenue & Customs. Completing the CT600A Page for Close Company Loans and Arrangements to Confer Benefits on Participators
7
GOV.UK. Beneficial Loan Arrangements – HMRC Official Rates
8
Legislation.gov.uk. Corporation Tax Act 2010 – Section 458
9
HM Revenue & Customs. COTAX Manual – COM53120
10
HM Revenue & Customs. Company Taxation Manual – CTM61630
11
GOV.UK. Company Tax Returns – Penalties for Late Filing