The Company Cheque You Must Repay: Director’s Loans and Section 455 in 2026/27
Photo: Loz Pycock from London, UK, CC BY-SA 2.0, via Wikimedia Commons
An owner-managed company can blur the line between business money and personal money. A director may use company funds for a home improvement, a tax bill or a family expense, intending to put the money back later. In accounting terms, that withdrawal usually sits in the director’s loan account. If the account is overdrawn at the company’s year end, the tax rules do not treat the arrangement as a harmless internal matter. Section 455 of the Corporation Tax Act 2010 can require the company to pay tax at 33.75% on the outstanding balance.
This article explains how the charge works in 2026/27, why the nine-month and twelve-month dates matter, and how the separate beneficial loan rules can apply even when no interest is charged.
Why an overdrawn loan account matters
A director’s loan account records money moving between the company and the director. If the company owes the director money, the account is in credit from the director’s perspective. If the director owes the company money, the account is overdrawn. Only the overdrawn balance creates the section 455 issue.
The charge normally applies to close companies making loans to participators. A participator is broadly a shareholder or loan creditor, and directors of owner-managed companies are often participators too. The rule can also catch loans to family members or other connected parties in some circumstances, so it is not limited to the person named on the bank transfer.
Section 455 is not Corporation Tax on trading profits. It is a separate charge designed to discourage company cash being extracted without being taxed as salary or dividends. The company pays it, not the director. If the loan is repaid, released or written off, the company may be able to reclaim it. Until then, it behaves like a cash deposit held by HMRC.
The 33.75% section 455 charge
For loans made on or after 6 April 2022, the section 455 rate is 33.75%. The rate remains relevant for 2026/27. The charge is calculated on the amount outstanding at the end of the company’s accounting period, not on the amount withdrawn during the year.
Suppose a company has a 31 March year end. A director withdraws £40,000 on 1 June 2025 and the balance is still owed on 31 March 2026. The section 455 charge is £13,500, being 33.75% of £40,000. The company must report the loan on form CT600A and pay the charge to HMRC. The director has not yet paid income tax on the £40,000, but the company is now out of pocket until the loan is dealt with.
That distinction is important. A director may look at the loan account and assume the withdrawal is simply a timing matter. The company’s cash-flow forecast may tell a different story.
The nine-month deadline
The section 455 charge is due nine months and one day after the end of the accounting period in which the loan was made. For a company with a 31 March 2026 year end, the payment date is 1 January 2027. For a 30 April 2026 year end, it would be 1 February 2027.
This is not the same as the deadline for filing the company tax return, although the two dates are connected. The CT600A supplementary page must be completed where there are loans to participators. Late payment can attract interest and penalties, so the nine-month date should be in the company’s diary as soon as the year-end accounts are prepared.
Repaying the loan before the nine-month date can reduce or avoid the cash outflow, but the accounting and reporting still need to be correct. A repayment made after the year end does not simply erase the loan from the earlier accounts. It may support a relief claim instead.
The twelve-month repayment window
A repayment plan should be realistic, not optimistic. In straightforward cases, repaying the loan within twelve months of the end of the accounting period in which it was made is the cleanest route to reclaiming the section 455 charge. For the 31 March 2026 year end, that window ends on 31 March 2027.
The company can claim relief when the loan is repaid, released or written off. HMRC should then repay the section 455 tax, although the mechanics and timing depend on the claim and the company’s compliance position. A formal repayment plan does not replace actual repayment. HMRC is likely to look at whether the money has genuinely gone back into the company and whether the arrangement has commercial substance.
If the loan is written off rather than repaid, the director may be treated as receiving a dividend or remuneration. That can create an income tax and National Insurance position for the director, while the company’s section 455 position still needs to be worked through. Writing off a loan is rarely a simple fix.
Beneficial loan rules when no interest is charged
Section 455 is only one part of the picture. The beneficial loan rules can apply when a director has a cheap or interest-free loan from the company. If the total loan exceeds £10,000 at any point in the tax year, the director may have a taxable benefit in kind.
The benefit is usually based on the difference between HMRC’s official rate of interest and the interest actually paid. Even if the company charges no interest, the benefit can still arise. The company reports it on form P11D and pays Class 1A National Insurance. The director may also see the benefit reflected in their self-assessment position.
For loans outstanding in 2025/26, the P11D deadline was 6 July 2026. For 2026/27, the same reporting discipline applies. A loan below £10,000 throughout the tax year may fall outside the beneficial loan charge, but it can still trigger section 455 if it is outstanding at the company’s year end. The two tests are separate.
A practical example: timing is everything
A company with a 31 March 2026 year end has an overdrawn director’s loan account of £40,000. The director intends to repay it from a property sale expected in spring 2027. The company must report the loan and pay £13,500 by 1 January 2027. If the sale completes in May 2027, the repayment falls outside the twelve-month window. The company may still be able to claim relief, but the position is less straightforward and the cash has been tied up for longer.
A better approach would be to agree a repayment schedule before the year end, with monthly transfers from the director’s salary or dividends. If the loan is reduced below £10,000 for part of the tax year, the beneficial loan charge may be reduced. If it is cleared by 31 March 2027, the company can usually reclaim the section 455 charge.
Document the loan and agree a plan
The strongest protection is a clear paper trail. Put a loan agreement in place, record the board decision, set an interest rate where appropriate and keep a repayment schedule. Reconcile the director’s loan account regularly rather than waiting for the accountant to find an unexplained balance at the year end.
A director’s loan is not automatically a tax problem. It becomes one when the balance is left undocumented, unpaid and unplanned. Before the 2026/27 year end, check the ledger, decide whether the withdrawal should be salary, dividends or a loan, and put a repayment plan in writing. If the loan is already outstanding, review the nine-month and twelve-month dates now. Early action gives the company more options and avoids a January surprise.
