As you may be aware, an outstanding loan to a director or shareholder from a close company can trigger a tax charge under Section 455 of the Corporation Tax Act 2010.
The director’s loan account is generally used to account for temporary withdrawals from the business for the director’s personal spending. However, if the director does not pay the company back within 9 months and one day after the company’s year end, the company must pay a corporation tax charge known as the s455 tax charge. This is to prevent directors/shareholders from extracting profits in the form of loans instead of taxable dividends or salary.
For several years the s455 tax charge has been calculated as 33.75% of the amount outstanding, matching the higher dividend tax rate. Following changes announced in the 2025 Budget the dividend higher rate, and therefore the s455 rate, increased to 35.75% for loans made on or after 6 April 2026. It is important to note that the s455 tax charge is paid by the company, not the individual director, and it is usually temporary. If the loan is repaid, released or written off, the company can claim a refund of the charge from HMRC, but only 9 months and one day after the end of the accounting period in which the loan is repaid.
It is also important to note that writing off a director’s loan can also have tax implications for the individual concerned and specific advice should be sought on this. HMRC anti-avoidance rules also prevent ‘bed and breakfast-ing’ where loans are repaid and immediately redrawn simply to avoid the charge. Furthermore, if a loan to a director exceeds £10,000 at any point in the tax year it will be treated as a beneficial loan and additional tax rules will apply. If no interest is charged, or interest is below HMRC’s official rate of interest, the difference will be taxable on the director as a benefit-in-kind. The company will also have to pay Class 1A national insurance on the taxable benefit. With the higher rate now in force for newer loans, it is important to monitor directors’ loan accounts closely and maintain accurate records of repayments and balances.
On a separate matter, those directors who have already filed their Tax Returns for the year ended 5 April 2026 will have noticed new boxes on the Tax Return this year, requiring additional information in relation to their directorships of ‘close companies’, even where no income has been received. Broadly, a company is a ‘close company’ if it is controlled by five or fewer shareholders or by any number of directors.
The Tax Return form now asks for more detailed information about each close company directorship, including the company’s name and registration number, the amount of dividends received from it (even if this is zero), and the maximum percentage of the share capital held by the director during the year. If you are a director of more than one company, a separate set of Employment pages must be completed for each directorship even where no salary, dividends or other income has been received.
The above is for general guidance only and no action should be taken without obtaining specific advice.
Pearson May Chartered Accountants & Chartered Tax Advisers
Bath, Trowbridge and Chippenham
If you are looking to trim your tax, it pays to get professional advice.
At Pearson May we specialise in a full range of accountancy services to help you maximise your profits and minimise the tax you have to pay.
Call Bath 01225 460491
or visit pearsonmay.co.uk
