S455 Tax: What It Is and How to Get It Back

S455 at a glance

• Rate: 33.75% of the outstanding balance (32.5% for loans made before 6 April 2022).
• Due: 9 months and 1 day after the accounting period ends.
• Refundable once the loan is repaid, but the refund is slow.
• Repaying and redrawing within 30 days does not work.
• Separate trap: a balance over £10,000 creates a benefit in kind.

Table Of Contents

• What Is S455 Tax?
• How an Overdrawn Loan Account Happens
• When S455 Is Charged
• How to Clear an Overdrawn Loan Account
• The 30-Day and £15,000 Anti-Avoidance Rules
• The Separate £10,000 Benefit in Kind Trap
• How to Reclaim S455 Tax
• Writing Off the Loan
• Why HMRC Looks at Loan Accounts
• Get Help With a Director’s Loan Account

What Is S455 Tax?

S455 is a charge under section 455 of the Corporation Tax Act 2010. Where a close company lends money to a participator (a shareholder or director) and the loan is still outstanding 9 months and 1 day after the accounting period ends, the company pays 33.75% of the balance to HMRC.

The rate is not arbitrary. It matches the higher rate of dividend tax, and that tells you exactly what the rule is for. Without it, a shareholder could take money out of their company indefinitely as a “loan” and never pay dividend tax on it. S455 removes the advantage by charging the same rate up front.

Two features make it unusual:

• It’s the company that pays, not you. The charge sits on the company’s Corporation Tax return even though the benefit was personal.
• It’s refundable. Unlike most tax, you get it back once the loan is repaid. Think of it as a deposit HMRC holds until the position is regularised.

That refundability is why s455 is less frightening than it first looks, and also why it catches people out: the money is recoverable but the cash flow damage is immediate and the recovery is slow.

How an Overdrawn Loan Account Happens

Almost nobody sets out to borrow from their own company. The overdrawn balance builds up quietly, usually because money was taken as drawings during the year with the intention of declaring dividends later, and then the dividends were never properly declared or the reserves weren't there.

The usual routes in:

• Drawings taken monthly against dividends that were never formally voted or minuted.
• Personal spending on the company card. A holiday, school fees, a car. Each one is a debit to the loan account.
• Dividends declared without distributable reserves. If the profits weren’t there, it isn’t a valid dividend, and it reverts to a loan.
• A bad year. Drawings were set when trading was good. Profits fell, the reserves didn’t cover them, and what looked like dividends became a loan retrospectively.
• Expenses that aren’t allowable. Disallowed costs paid by the company on the director’s behalf land in the loan account.

The last two are the ones that produce genuine shock, because the director did nothing different. The company’s performance changed underneath them, and an account they believed was in credit turns out to be overdrawn once the year end accounts are prepared. This is typically discovered nine months after the event, by which point the s455 deadline is close or gone.

When S455 Is Charged

The trigger date is 9 months and 1 day after the end of the accounting period, the same day the Corporation Tax is due. If the balance is cleared before then, no s455 arises. If any of it remains, the company pays 33.75% of what's left.

A worked example. Company year end 31 March 2026:

Date	Event
31 March 2026	Year end. Loan account overdrawn £60,000
1 January 2027	S455 deadline (9 months + 1 day)
1 January 2027	If still £60,000 outstanding: £20,250 payable

Partial repayment helps proportionately. Reduce the balance to £20,000 before 1 January and the charge is £6,750 rather than £20,250. There is no all-or-nothing cliff, which means clearing part of the loan is always worth doing even if you can’t clear it all.

How to Clear an Overdrawn Loan Account

Three routes, and the right one depends on your reserves and your personal tax position for the year.

1. Repay it in cash

Cleanest and cheapest. You pay the money back from personal funds before the deadline and no s455 arises. Obvious, but often not available, since the reason the account is overdrawn is usually that the cash was spent.

2. Declare a dividend

Available only if the company has distributable reserves, meaning accumulated realised profits after tax. The dividend is credited against the loan account rather than paid in cash, clearing the balance without money moving.

You pay dividend tax personally at 8.75%, 33.75% or 39.35% depending on your band. Note that the higher rate is 33.75%, identical to s455, which is the point of the design. The difference is that dividend tax is a real cost while s455 is refundable, so this is a genuine decision rather than an obvious one.

If the reserves are not there, this route is closed. Declaring a dividend anyway creates an unlawful distribution which the company can reclaim from you, and which can cause problems in an insolvency.

3. Vote a bonus through payroll

Always available, including where there are no reserves, because a bonus is a cost rather than a distribution. The company gets a Corporation Tax deduction, but you pay income tax at your marginal rate plus employee National Insurance, and the company pays employer’s National Insurance on top.

Usually the most expensive in total tax, but sometimes the only option, and the Corporation Tax deduction narrows the gap more than people expect.

Route	Needs reserves?	Company relief	Your cost
Cash repayment	No	None needed	Nothing, if you have the cash
Dividend	Yes	None	8.75% / 33.75% / 39.35%
Bonus	No	CT deduction	Income tax + employee NI

Our guide to salary vs dividends works through the comparison in more detail.

The 30-Day and £15,000 Anti-Avoidance Rules

Repaying the loan just before the deadline and taking it straight back out again does not work. Where the balance is £5,000 or more and you redraw £5,000 or more within 30 days of repaying, HMRC treats the repayment as though it never happened and charges s455 anyway.

This practice is known as bed and breakfasting, and HMRC closed it deliberately. There is a second, wider rule aimed at larger arrangements: where the balance is £15,000 or more and, at the time of repayment, there were arrangements or an intention to redraw, the repayment can be disregarded even outside the 30-day window.

The practical point is that the escape route has to be real. Clearing the account with borrowed money you intend to take straight back out afterwards will not survive scrutiny, and an enquiry into it is considerably more unpleasant than simply paying the s455 and reclaiming it later.

The Separate £10,000 Benefit in Kind Trap

This one is missed constantly because it is a completely separate charge from s455, on a different person, measured over a different period. If the loan balance exceeds £10,000 at any point in the tax year, and you paid no interest or interest below HMRC's official rate, it is a taxable benefit in kind.

What that means in practice:

• You pay income tax on the benefit, calculated as interest at HMRC’s official rate on the balance.
• The company pays Class 1A National Insurance on it.
• It’s reported on a P11D, or through payrolled benefits.

Three details worth holding on to. It’s measured over the tax year (to 5 April), not your company’s accounting period. It bites if the threshold is breached at any point, not just at the year end. And it applies whether or not s455 is also charged, so a loan repaid within nine months can still produce a P11D charge.

You can avoid it entirely by paying interest to the company at HMRC’s official rate. The company then has taxable interest income, but at small sums this is usually cheaper than the benefit charge and the Class 1A on top.

How to Reclaim S455 Tax

S455 is repaid once the loan is repaid, released or written off, using form L2P. The timing is the part that surprises people: the refund is not due until 9 months and 1 day after the end of the accounting period in which the repayment happened. Repay in month two of a new year and you wait nearly a full year for the money.

The mechanics:

• Claim using form L2P, online or attached to the company tax return for the period in which the loan was repaid.
• You have 4 years from the end of the accounting period in which the loan was repaid to make the claim. Miss that and the money is gone permanently.
• Any interest paid on late Corporation Tax is not reclaimable. Only the s455 itself comes back.

A worked timeline, continuing the earlier example:

Date	Event
1 January 2027	£20,250 s455 paid
June 2027	Loan repaid in full
31 March 2028	End of the accounting period in which repayment fell
1 January 2029	Refund due

Two years between paying and recovering. The tax was never permanently lost, but £20,250 sat with HMRC throughout, which for most businesses of this size is a real cash flow cost rather than an accounting footnote.

That gap is the argument for dealing with the balance before the deadline rather than paying and reclaiming. Directors often assume that because s455 is refundable, paying it is a soft option. The cash flow says otherwise.

Writing Off the Loan

Tempting, and usually the worst option available.

Where a company writes off or releases a director’s loan, the amount is treated as a distribution and taxed on the director at dividend rates. HMRC may also pursue National Insurance, arguing it’s earnings from employment. The company gets no Corporation Tax deduction for the write-off, so the loss is real.

Net effect: you pay tax at dividend rates on money you have already spent, the company gets no relief, and there’s a reasonable chance of an NI argument. The s455 does come back, but a write-off should be a last resort when there is genuinely no prospect of repayment, not a planning route.

Why HMRC Looks at Loan Accounts

Director’s loan accounts are a standing item in HMRC compliance work, for a straightforward reason: they sit exactly where personal and company money meet, and that’s where errors concentrate.

What draws attention:

• A balance that never moves, or grows year on year, suggesting remuneration being disguised as a loan.
• Dividends declared without reserves, which the accounts reveal directly.
• Personal expenditure through the company that hasn’t been posted to the loan account at all.
• A repayment immediately before the deadline followed by a withdrawal after it.

This connects to the wider personal expenditure work HMRC has been doing, where lifestyle that outstrips declared income prompts a closer look at how money is actually leaving the company. Our guide to how likely you are to be investigated by HMRC covers how those cases usually start.

The defensible position is simple and worth maintaining: keep the loan account current in your bookkeeping, minute dividends properly at the time, check reserves before declaring, and don’t run personal spending through the company without posting it correctly.

Get Help With a Director’s Loan Account

Most s455 problems are discovered late, when the year end accounts are prepared and the deadline is weeks away rather than months. At that point the options narrow quickly and the cheapest route may already be closed.

ARB Accountants deals with overdrawn loan accounts for owner-managed companies: working out the real balance, comparing the cost of dividend against bonus against repayment, handling the L2P reclaim, and keeping the account straight going forward so it doesn’t recur.

Read next

• What can a director’s loan be used for?: the rules on taking money out in the first place
• Salary vs dividends: comparing the routes for clearing a balance
• Year end accounts for a limited company: when the balance usually gets discovered
• How likely are you to be investigated by HMRC?: why loan accounts attract attention