If you’re a company director who’s ever dipped into your business account for a bit of cash, listen up. There’s a sneaky tax charge that can land you with a bill you weren’t expecting. It’s called Section 455 tax (S455 for short), and it bites when director’s loans aren’t paid back on time.
Let’s break it down, plain and simple.
What Is Section 455 Tax?
S455 tax is a charge that kicks in when a director borrows money from their own limited company and doesn’t repay it within nine months and one day after the end of the company’s accounting year.
It’s HMRC’s way of stopping directors from taking money out tax-free through a loan instead of paying themselves via salary or dividends.
How Much Is It?
As of 2025, the S455 tax rate is 33.75% of the unpaid loan. That’s the same as the higher rate of dividend tax.
So if you borrow £10,000 and don’t repay it on time, the company has to stump up £3,375 to HMRC. Ouch.
When Do You Pay It?
You pay the S455 tax with your Corporation Tax, using the CT600 return. It goes on a specific section called CT600A.
Good news? It’s refundable – but only once the loan is fully repaid or turned into a proper dividend (and you’ve waited long enough).
How Do You Avoid It?
Simple:
- Don’t borrow from the company, or…
- If you do, repay it within 9 months and 1 day of year-end
- Or clear the balance with a dividend (only if the company has enough profit to support it)
- Keep a clear record of any loans and repayments
Warning: Don’t Try to Be Clever
HMRC’s wise to the tricks. If you repay the loan just before the deadline and take the same amount out again 30 days later, they’ll treat it as if you never repaid it. This is called “bed and breakfasting.”
Also, if you’ve got multiple loans knocking about, they might lump them all together and charge S455 on the lot. So keep your books tight.
What If the Company Closes?
If your business winds up and there’s an unpaid loan on the books, HMRC or a liquidator can chase you personally. That includes reclassifying the loan as income – meaning you could owe Income Tax and National Insurance too.
Directors of Small Companies – Take Note
This mostly hits close companies – that’s most small businesses run by five or fewer shareholders. So if that’s you, you’re right in the firing line.
S455 tax is avoidable – but only if you know the rules and stick to them. If you need to borrow money from your business, plan it properly and speak to your accountant first.
At AD Accountancy, we help directors manage their loan accounts the right way, avoiding S455 hits and keeping HMRC sweet.
Need a hand tidying up your records or repaying a loan the smart way?
