Need help with s455 tax?
S455 tax applies when a company director borrows money from their company and fails to repay it within the deadline. It’s a key part of Corporation Tax compliance for close companies, and knowing how it works can help you avoid hefty charges or delays in reclaiming what you’ve paid.
Getting expert help with your accounting services ensures you stay compliant and never miss a repayment window.
In this guide, you’ll learn:
- When s455 tax applies to directors’ loans
- How the 33.75% rate is calculated and repaid
- How to manage and report s455 tax through your CT600A form
S455 tax got your head in a tailspin? Get in contact with a Sleek expert who can help.
What is s455 tax?
S455 tax is a Corporation Tax charge that applies when a close company, typically one controlled by five or fewer shareholders, lends money to a director or shareholder and that loan isn’t repaid within nine months and one day after the company’s year end.
This rule, found in Section 455 of the Corporation Tax Act 2010, ensures that company profits aren’t extracted tax-free through loans. If the loan remains unpaid, HMRC requires the company to pay 33.75% of the outstanding balance as s455 tax.
The company can later reclaim that tax once the loan is fully repaid, written off, or released, though this can take time. You’ll need to handle it through the CT600A supplementary pages when filing your Corporation Tax return.
Also, as a word of advice, check if your company qualifies as “trading” or “non-trading,” as this affects your Corporation Tax obligations.
Why does s455 tax exist?
S455 tax prevents directors from using company funds for personal spending without paying tax. HMRC introduced it to ensure that loans to directors are treated in line with dividends or salaries for tax purposes.
In other words, it closes a loophole. Making sure that company cash used personally is taxed fairly, just like other forms of profit extraction.
For guidance on director remuneration options, see Tax on directors’ loans in the UK.
How does the s455 tax rate work?
The s455 tax rate mirrors the higher dividend rate to keep things fair. Since April 2022, that rate has been 33.75% of the loan balance still outstanding nine months and one day after your accounting period ends.
If your company made a director’s loan before April 2022, the older 32.5% rate applies instead.
You’ll pay this charge alongside your Corporation Tax, using the CT600A form. The tax is then reclaimable once the loan is repaid, written off, or released, though this can take several months to process.
Here’s a quick summary:
Scenario | Loan date | Rate (%) | Repayment window | Can you reclaim? |
Director’s loan not repaid after accounting period | Before 6 April 2022 | 32.5% | 9 months + 1 day | Yes, after repayment |
Director’s loan not repaid after accounting period | On or after 6 April 2022 | 33.75% | 9 months + 1 day | Yes, after repayment |
Loan repaid within period | Any | 0% | — | Not applicable |
You can learn more about deadlines and filing responsibilities in our guide to How to Pay Corporation Tax.
When and how to reclaim s455 tax
You can reclaim s455 tax once the director’s loan has been repaid, written off, or released. However, refunds aren’t automatic—your company must apply through HMRC, and it can take time.
HMRC only allows reclaims within four years from the end of the accounting period in which the repayment occurred. This ensures companies keep accurate records of repayments and don’t delay closing their overdrawn loan accounts.
Here’s how it works:
- Repay the loan – clear the director’s loan in full.
- Update your CT600A – include repayment details in the next Corporation Tax return.
- Submit form L2P – claim the s455 refund directly from HMRC.
- Wait for HMRC processing – refunds are usually paid several weeks after verification.
Reclaim trigger | When it applies | Refund timeline | Action required |
Loan repaid | Within 9 months + 1 day of year-end | Fast (offset in next CT return) | Report via CT600A |
Loan repaid after 9 months + 1 day | Anytime after due date | Up to 4 years | File form L2P to reclaim |
Loan written off or released | When company forgives the loan | Case-by-case | Treat as income and adjust CT return |
What are the key factors affecting S455 tax?
The amount of s455 tax your company pays depends on three main factors: the repayment timeline, the outstanding balance, and the director’s shareholding status. Understanding each helps you avoid unnecessary Corporation Tax charges.
Loan repayment timeline
Timing is critical. If a director’s loan isn’t repaid within nine months and one day of the company’s year end, the 33.75% s455 charge applies.
However, repaying the loan before that deadline means no charge at all.
If you repay after the deadline, you can still reclaim the s455 tax, but only after filing a new CT600A and submitting form L2P to HMRC.
To plan ahead, read our guide on Trading vs Non-Trading for Corporation Tax to see how your company’s activity affects payment schedules.
Outstanding loan balances
If a loan balance exceeds £10,000, HMRC treats it as a benefit in kind, meaning Class 1A National Insurance contributions may apply at 13.8%.
It’s also worth noting HMRC’s “bed and breakfasting” rule: if a director repays a loan and takes out another of £5,000 or more within 30 days, the company still pays the s455 charge on the original amount.
Keeping loans small and fully repaid before new ones are issued prevents this issue.
Learn more about legitimate expense management in Limited Company Expenses.
Shareholding status
The s455 tax applies to loans made to any participator—a shareholder, director, or their associate.
Loans made to family members, business partners, or trusts connected to shareholders fall under the same rule. HMRC focuses on who ultimately benefits from company funds, not just who receives the loan.
If a director is also a shareholder, declaring a dividend to clear the overdrawn account may be an option, though this creates a personal tax liability instead.
Set a calendar reminder for nine months after your year end so you never miss the s455 repayment window—and save yourself a 33.75% cash flow hit.
What are some strategies for managing s455 tax effectively?
Being strategic about how and when you take or repay a director’s loan can help reduce or even avoid an s455 tax charge.
Repay loans promptly
The simplest strategy is to repay any overdrawn director’s loan account before the nine-month deadline. This keeps your company from triggering the 33.75% s455 charge and improves its financial position on paper.
If you expect a delay, plan your repayments in instalments and keep clear documentation in your accounting records. Sleek’s Accounting Services can help you track repayments and avoid late-filing penalties.
Use dividends or bonuses wisely
Another common option is to clear a loan balance by declaring a dividend or paying a bonus. This moves the balance from debt to income, which means you’ll pay Income Tax or Dividend Tax instead of s455 tax.
Just make sure your company has sufficient profits before declaring a dividend, and always keep minutes and vouchers as evidence for HMRC. For guidance, see Tax on Dividends in the UK.
Plan around rate changes
HMRC can change the s455 rate in line with dividend tax rates. If a rate rise is expected, consider repaying the loan early to take advantage of the lower percentage. Similarly, avoid taking new loans near the company’s year-end, when repayment timelines tighten.
What are the implications of non-compliance with s455?
Failing to comply with s455 tax rules can quickly get expensive. If a director’s loan isn’t repaid on time, the company owes 33.75% of the loan balance as Corporation Tax, plus possible interest until the loan is cleared or written off.
For older loans made before April 2022, the lower 32.5% rate still applies, but HMRC continues to tighten enforcement to stop companies from recycling loans to avoid payment.
Non-compliance can also affect your company’s creditworthiness and increase HMRC scrutiny on future Corporation Tax returns. Once the loan is eventually repaid, you can reclaim the tax, but HMRC will not refund any late payment interest.
If you’re already facing penalties, our guide on VAT Late Payment Penalties explains how HMRC applies similar interest and fines across other tax areas.
Record keeping and administration
Accurate record keeping is vital for managing s455 tax. Every loan to a director, shareholder, or associate must be clearly documented to prove when it was taken out, how it was repaid, and on what terms.
Under section 413 of the Companies Act 2006, each company must maintain a director’s loan account (DLA) showing all transactions between the company and its directors. This includes:
- The date and amount of each loan or repayment
- Any interest charged or waived
- The repayment schedule and outstanding balance
In your financial statements, these entries should appear under debtors or creditors, depending on who owes whom money at year end. If a loan is written off, the amount should be shown as income for the director, triggering potential Income Tax.
For a detailed guide to what counts as a reportable company transaction, read Limited Company Expenses.
Meticulous records not only simplify your Corporation Tax filing but also protect you if HMRC questions your company’s treatment of director loans. Poor documentation is one of the main reasons companies struggle to reclaim s455 tax.
Closing or insolvency: the impact on s455 tax
If your company closes or becomes insolvent while a director’s loan remains unpaid, the s455 tax doesn’t simply disappear. It can create serious personal liabilities for directors.
In liquidation, a liquidator will review the director’s loan account and demand repayment of any outstanding balance. This money is treated as company property and must be recovered to pay creditors.
If the director can’t repay the loan, the liquidator may pursue legal action or even bankruptcy proceedings to recover funds. In cases where the director continued borrowing while the company was in financial difficulty, HMRC may investigate for wrongful trading.
Dealing with multiple director’s loans
If your company has more than one director’s loan account, HMRC usually treats them separately for reporting and tax purposes.
However, if the accounts show an intent to treat all loans as one combined balance, HMRC may aggregate them, triggering an s455 charge on the total amount.
To stay compliant:
- Keep separate, clearly labelled DLAs for each loan.
- Track repayment dates individually.
- Avoid rolling new loans into old ones without proper documentation.
When several directors borrow from the company, accurate records prevent confusion and protect against unnecessary s455 tax bills.
If you’re unsure how to manage multiple loans or close one off correctly, see Register for Corporation Tax for details on proper reporting requirements.
Sleek and s455 tax: Keeping your company compliant
Understanding s455 tax is essential if you’ve ever borrowed money from your own company. With careful planning, prompt repayments, and clear documentation, you can stay compliant and avoid paying unnecessary Corporation Tax.
Sleek’s expert accountants make managing directors’ loans simple. From tracking repayments to handling CT600A filings, we’ll ensure your company stays on the right side of HMRC—saving you time, stress, and money.
Need help managing s455 tax and director loan compliance? Stay compliant the easy way with Sleek’s accounting and tax services.
FAQs on s455 tax
When does s455 tax apply?
S455 tax applies when a close company lends money to a director or shareholder and that loan isn’t repaid within nine months and one day of the company’s year-end. The tax charge is 33.75% of the outstanding balance.
When can s455 tax be reclaimed?
You can reclaim s455 tax once the loan has been fully repaid, written off, or released. Claims must be made within four years from the end of the accounting period in which the repayment occurred, usually via form L2P.
How does s455 tax work?
The company pays s455 tax at the same time as its Corporation Tax, but the amount is refundable once the director’s loan is cleared. HMRC treats this as a temporary charge to stop directors withdrawing untaxed profits.
How to claim back s455 tax
To claim a refund, file the CT600A with the relevant repayment details and submit form L2P to HMRC. The refund will usually be processed within a few weeks of verification. For help filing correctly, see Register for Corporation Tax.
When will s455 tax be repaid?
HMRC typically issues repayments a few weeks after confirming the loan has been settled. However, if your company’s accounts or filings are delayed, processing may take longer. Keeping your records accurate and up to date speeds up repayment.
Does s455 tax apply to all company loans?
No. It only applies to loans made by close companies to participators (such as directors, shareholders, or their associates). Loans made on commercial terms to non-shareholders are not usually affected.
Can I avoid s455 tax legally?
Yes, by repaying your director’s loan in full before the nine-month deadline or by converting it into a properly declared dividend or bonus. For more ways to reduce overall tax, see How to Pay Less Corporation Tax.
Disclaimer: The preceding information is not legal advice. This content is aimed to provide general guidance. For more formal or legal advice, contact Sleek directly.
