Section 455 tax on company director loans
Under Section 455 of the Corporation Tax Act 2010 (CTA 2010), if a close company makes a loan or advance to a participator (a director or shareholder) that remains unpaid 9 months and 1 day after the end of the accounting period, the company must pay Section 455 tax to HMRC.
The current Section 455 tax rate is 33.75% of the outstanding balance. This tax is reported in the supplementary pages of the company tax return (form CT600A) and is payable alongside standard Corporation Tax.
The 9 months and 1 day statutory deadline
The Section 455 liability depends entirely on whether the loan is repaid before the statutory deadline. For example, if your company financial year ends on 31 December, any overdrawn director's loan balance must be fully repaid by 1 October of the following year to avoid Section 455 tax.
If the loan is settled in full on or before this date (via bank transfer, salary credit, or declared dividend), no Section 455 tax is payable. If only part of the loan is repaid, Section 455 tax is due on the remaining unpaid portion.
Reclaiming Section 455 tax from HMRC
Section 455 tax is not a permanent cost to the company; it acts as a refundable deposit designed to discourage directors from using company cash as personal interest-free capital.
Once the director repays the loan, the company can reclaim the 33.75% tax back from HMRC. However, under Section 458 CTA 2010, HMRC will not repay the tax until 9 months and 1 day after the end of the accounting period in which the repayment took place. If the loan is repaid after the original deadline, the company must wait for this refund window to open.
Anti-avoidance and bed and breakfasting rules
To stop directors from temporarily repaying a loan immediately before the deadline and redrawing the cash shortly afterwards, HMRC enforces 'bed and breakfasting' rules under Section 464C CTA 2010.
If you repay a loan of 5,000 pounds or more and borrow 5,000 pounds or more back from the company within a 30-day window, the repayment is matched against the new borrowing and ignored for tax purposes. In addition, the 'arrangements rule' catches repayments where the director intended to borrow the money back even outside the 30-day window.
Worked example: 40,000 pound director loan
Suppose a company director takes an overdrawn loan of 40,000 pounds that remains unpaid at the 9-month corporation tax deadline:
1. Section 455 Corporation Tax: 40,000 pounds multiplied by 33.75% equals 13,500.00 pounds due from the company.
2. Benefit in Kind (P11D value): 40,000 pounds multiplied by HMRC's 3.75% official rate equals 1,500.00 pounds.
3. Director's personal tax (40% higher rate): 1,500.00 pounds multiplied by 40% equals 600.00 pounds.
4. Company Class 1A NIC: 1,500.00 pounds multiplied by 13.8% equals 207.00 pounds.
Total corporate outflow is 13,707.00 pounds (of which 13,500.00 pounds is reclaimable upon loan repayment), and the director pays 600.00 pounds personal tax.
Inputs for the company director loan calculator
Director's loan amount
The total balance borrowed from the company by the director.
Repayment timing
Select whether the loan will be repaid within 9 months and 1 day of your company's accounting period end to assess whether Section 455 tax applies.
Interest rate charged by company
The annual interest rate paid by the director to the company (enter 0% for interest-free loans).
Borrower's income tax rate
The director's personal marginal income tax rate (20% basic, 40% higher, or 45% additional rate).
Tax year
The applicable UK tax year for statutory rates.
Months loan was held in tax year
The number of months the loan was active during the tax year for pro-rata BIK valuation.
CALCULATOR QUESTIONS
Company director loan calculator questions
What is Section 455 tax?
Section 455 is a Corporation Tax charge levied on close companies when a director or shareholder borrows money from the business and does not repay it within 9 months and 1 day after the accounting period end. The rate is currently 33.75%.
How do companies pay Section 455 tax?
Section 455 tax is reported on supplementary page CT600A of the Company Tax Return and is paid directly to HMRC alongside normal Corporation Tax, 9 months and 1 day following the company's financial year-end.
How do I claim back Section 455 tax?
You can reclaim Section 455 tax by completing form L2P online or reporting the repayment on form CT600A for the period in which the repayment occurred. HMRC pays the refund 9 months and 1 day after the end of the accounting period in which you repaid the loan.
What is the bed and breakfasting rule for director loans?
Under Section 464C CTA 2010, if you repay a loan of 5,000 pounds or more and take out another loan of 5,000 pounds or more within 30 days, the repayment is disregarded for tax purposes, meaning Section 455 tax remains due.
What happens if a company writes off a director's loan?
If a company writes off or releases an overdrawn director's loan, the loan is treated as taxable dividend income for the director. The company can reclaim any Section 455 tax paid, but cannot claim Corporation Tax relief on the written-off loan amount.
Can I declare a dividend to clear the loan before the deadline?
Yes. If the company has sufficient retained profits (distributable reserves), the directors can declare a dividend and credit the amount to the DLA to clear the overdrawn balance, completely avoiding Section 455 tax.