If you run your own limited company, it is easy to take more out than you pay yourself through salary and dividends: a transfer to your personal account, a family bill paid from the business card. That money sits on your director's loan account, and if you still owe it to the company at the year end, the clock starts.
For the most common small company year end, 31 March 2026, the key date is 31 December 2026, eight weeks away. Repay by then and there is no extra tax. Miss it and the company pays a temporary tax called s455, which can tie up cash for well over a year. Here is how it works, what it costs, and how to clear the balance safely.
In a nutshell
- Your loan account can be overdrawn. When you take out more than salary, dividends and expenses owed to you.
- Repay by 31 December 2026. For a balance owed at a 31 March 2026 year end.
- s455 is 33.75 percent on last year's loans. New loans since 6 April 2026 cost 35.75%.
- Pay HMRC before Christmas. The due date, 1 January 2027, is a bank holiday.
- The tax comes back, but slowly. Not until 9 months and 1 day after the period of repayment.
- Clear it the right way. Repaying and re-borrowing quickly does not work.
1. What an overdrawn directors loan account is
The director's loan account records money moving between you and your company that is not salary, dividends or a repayment of expenses. If the company owes you money, the account is in credit. If you owe the company, it is overdrawn.
Because most small companies are close companies, controlled by a handful of shareholders or by their directors, an overdrawn balance owed by a shareholder director can trigger s455. There is a narrow exception for loans of up to £15,000 to full-time workers without a material interest in the company, broadly more than 5%, so it rarely helps an owner director.
2. The 31 December repayment deadline
gov.uk is direct: you avoid s455 if you repay the loan within 9 months of the end of the company's accounting period. For a year ending 31 March 2026, that means the money must be back in the company by Thursday 31 December 2026.
The same date is also the usual deadline for filing that year's accounts at Companies House, for companies past their first set of accounts. Late filing penalties start at £150 and are automatic, so both jobs belong in the same December diary.
3. How much s455 costs
The s455 rate follows the dividend upper rate. For loans made before 6 April 2026, it is 33.75%. So any balance outstanding at 31 March 2026 is charged at 33.75%, whatever date you look at it.
For loans made on or after 6 April 2026, the rate is 35.75%, which matters for year ends from 30 April 2026 onwards and for the year ending 31 March 2027. Two cautions. gov.uk's general guide to directors' loans still shows only 33.75%, so rely on HMRC's Corporation Tax service page instead. And HMRC says its online filing service will only be updated for the new rate on 6 April 2027: if a return needs the new rate and is filed before then, it has to be amended afterwards.
s455 is not a fine. It is a refundable tax, but the company pays it on the same deadline as its Corporation Tax.
4. Paying HMRC on time over Christmas
Corporation Tax, and any s455, is due 9 months and 1 day after the year end. For a 31 March 2026 year end that is Friday 1 January 2027, a bank holiday. HMRC's rule is that when the deadline falls on a non-working day, the money must reach HMRC on the last working day before it, which is Thursday 31 December, unless you pay by Faster Payments through online or telephone banking.
Bacs and an existing Direct Debit take 3 working days, and a new Direct Debit takes 5. With Christmas Day on Friday 25 December and the Boxing Day holiday moved to Monday 28 December, those payments need to start well before Christmas.
Note that these are two separate tests: the loan repayment that avoids s455 must be made by 31 December, and the tax itself is due on 1 January.
5. Getting the s455 tax back
Once the loan is repaid, written off or released, the company can reclaim the s455. The catch is timing: relief is not due until 9 months and 1 day after the end of the accounting period in which the loan was repaid. Interest charged on late s455 is not refunded.
If the loan is repaid within the 9 months, the relief goes on the company's return (form CT600A). Otherwise the company makes a separate claim, for which HMRC has an online form (L2P). The claim must be made within four years from the end of the financial year in which the loan was repaid, released or written off.
HMRC also has an online tool for confirming that loans declared on a return have been repaid in full. It is for when HMRC asks you to confirm; it does not reclaim the tax or change the return.
6. Ways to clear the balance and the re-borrowing trap
There are three usual ways to clear an overdrawn account, each with its own cost:
- Repay in cash. No tax, as long as the money really stays repaid.
- Declare a dividend credited to the loan account. The company needs distributable profits, and you pay dividend tax on it.
- Pay a bonus through payroll. It is taxed under PAYE with National Insurance, and the company pays employer National Insurance too.
What does not work is repaying just before the deadline and borrowing it straight back. If you repay £5,000 or more and take out new loans of £5,000 or more within 30 days, HMRC can match the repayment to the new loans, so s455 stays due on the old balance. Where £15,000 or more is owed and new borrowing is already planned, the matching applies with no time limit. Clearing the balance with a dividend or a taxed bonus is outside these rules. Our guide to dividends vs salary covers the tax on each route.
A worked example: Paweł's building company
Paweł runs a building company with a 31 March year end. At 31 March 2026 he owed the company £18,000 on his director's loan account, all of it taken during 2025/26.
- If he repays by 31 December 2026: no s455 at all.
- If he does not: the company owes s455 of £18,000 × 33.75% = £6,075, due with its Corporation Tax on 1 January 2027, so in practice paid by 31 December.
- If he then repays in June 2027: that falls in the year ending 31 March 2028, so the £6,075 only comes back from 1 January 2029, more than two years after it was paid.
Separately, because his balance went over £10,000 during the tax year, the loan is a beneficial loan. At the official rate of 3.75%, an £18,000 interest-free loan held all year gives a taxable benefit of about £675, reported on a P11D, with Class 1A National Insurance for the company.
Things to watch out for
- 31 December is the repayment date. The tax due date is 1 January, a bank holiday.
- 33.75% applies to the 31 March 2026 balance. 35.75% is for loans made from 6 April 2026.
- Re-borrowing within 30 days undoes a repayment. For amounts of £5,000 or more.
- The refund is slow. Expect it 9 months and 1 day after the period of repayment.
- Over £10,000 means a benefit in kind. If the balance passes £10,000 at any time in the tax year.
- Accounts are due too. Companies House deadlines and penalties are separate.
How Ollen Services Can Help
An overdrawn loan account is rarely a problem if it is spotted in October or November. It becomes expensive when it is found in late December, or when the accounts are prepared after the repayment deadline has passed.
As part of our limited company management service, we keep your director's loan account up to date, warn you before the 9-month deadline, and help you choose between repaying, a dividend or a bonus. We prepare the accounts, the Corporation Tax return and any s455 calculation, and we work in English and Polish.
Call us on 07513 491 259 or email hello@ollenservices.co.uk. If you think you owe your company money, send us your loan account balance and we will tell you the cheapest way to clear it before 31 December.