Manage a director's loan account

A director's loan is money you, or a close family member, take from your company that is not salary, a dividend, an expense repayment or money you previously paid into the company. These rules apply across the UK.

Keep a loan account and get approval

Record every sum you borrow from or pay into the company in a director's loan account. At the end of the financial year, show any balance on the balance sheet, and give the details of loans to directors in the notes to the accounts: the amount, the interest rate, the main conditions and any amounts repaid, written off or waived.

A company may not lend to a director unless its shareholders approve the loan by resolution, with a memorandum setting out the nature of the loan, its amount and its purpose. No approval is needed where the director's loans in total do not exceed £10,000, or where the money meets expenditure for the company's purposes and stays within £50,000. Without approval the loan can be set aside by the company, and the director must account to the company for any gain and indemnify it against any loss.

If you owe the company money

The company pays tax on a loan to a shareholder, or to a close relative of one, if it is a close company. That is broadly any company controlled by five or fewer shareholders or by its directors, which covers most owner-managed companies. The tax, called section 455 tax, is a percentage of the loan equal to the dividend upper rate for the tax year in which the loan was made. That rate is 35.75% for loans made from 6 April 2026 and 33.75% for loans made from 6 April 2022 to 5 April 2026.

The tax is due on the day after the end of the nine months that follow the accounting period in which the loan was made, so repay the loan before then to avoid it. Show the amount owed at the end of the accounting period on form CT600A with your Company Tax Return.

A loan of up to £15,000 to a full-time employee or director who has no material interest in the company is outside the charge.

Reclaim the tax once the loan is repaid

If section 455 tax has been paid, the company can reclaim it after the loan is repaid, written off or released. HMRC will not repay it before 9 months and 1 day after the end of the accounting period in which the repayment, write-off or release took place. The claim must be made within four years of the end of the financial year in which that happened. Claim on form L2P, or on form CT600A where you are amending the return for the period in which the loan was made within two years of that period ending. The company cannot reclaim any interest it paid on the tax.

Do not repay and re-borrow

Anti-avoidance rules stop a quick repayment from clearing the charge. If you repay £5,000 or more and borrow £5,000 or more again within the same 30 days, with the new borrowing falling in a later accounting period, HMRC treats the repayment as clearing the new borrowing instead of the old loan. The same applies where you owe £15,000 or more, and arrangements are in place to replace the amount you repay with a new loan. The original loan then stays outstanding for section 455 tax until you repay it for good.

If the loan is more than £10,000

If you are a director and owe the company more than £10,000 at any time in a tax year, the loan is a benefit in kind. The company reports it on form P11D and pays Class 1A National Insurance on its value, and you report it on your Self Assessment return. The value is the interest at HMRC's official rate, less any interest you actually pay. The official rate is 3.75% from 6 April 2025 and was unchanged on 6 April 2026. Charging interest at or above the official rate removes the benefit.

Clear an overdrawn account

Before the section 455 tax due date, you can clear a loan in one of these ways:

• repay it from your own money
• offset it against expenses the company owes you
• vote a dividend, if the company has enough distributable profit, which is taxed on you at dividend rates
• pay it as salary through payroll, which is subject to Income Tax and National Insurance

If the company writes off or releases a loan instead, you are taxed as if you had been paid. The company deducts Class 1 National Insurance through payroll, and you pay Income Tax through Self Assessment.

If the company owes you money

Money you lend your company is not income for the company, so it pays no Corporation Tax on it, and repaying it to you is not income for you. If you charge interest, it is a business expense for the company and personal income for you, so report it on your Self Assessment return. The company pays you the interest less Income Tax at the basic rate of 20%, and reports and pays that tax every quarter on form CT61.