What is an overdrawn director's loan account?

It is a running record of money that has moved between you and your company outside salary, dividends and genuine expense reimbursement. The account is overdrawn when the company has paid out more to you, or on your behalf, than you have put in or been formally voted. For most contractors it builds up quietly: regular drawings taken through the year with the intention of covering them with a dividend later, personal spending on the company card, or a dividend declared without enough distributable profit to support it. The balance at the accounting period end is what matters for section 455.

How do I claim the s.455 tax back?

Section 458 relief is claimed once the loan is repaid, released or written off. If the repayment happens within two years of the end of the accounting period in which the loan was made, the claim can be made by amending the original company tax return; after that window you make a separate written claim, and the outside deadline is four years from the end of the financial year in which the repayment falls. Either way the money is not paid back until nine months and one day after the end of the accounting period in which you cleared the loan.

Is there a benefit in kind on a director's loan as well as s.455?

Yes, if the balance exceeds £10,000 at any point in the tax year and you are not paying interest at the official rate. The cash equivalent of the cheap loan is a taxable benefit under the beneficial loan rules in ITEPA 2003, reported on form P11D, taxed on you personally and charged to employer Class 1A National Insurance on the company. This sits on top of section 455, which is a company charge on the loan balance rather than a charge on you.

Can I clear the loan before the year end and take it out again afterwards?

Not reliably. Section 464ZA, inserted by Finance Act 2025 with effect from 30 October 2024, matches repayments to new borrowing in two situations. Where repayments of £5,000 or more are made and chargeable payments of £5,000 or more are made within 30 days, the repayment is treated as clearing the new loan rather than the old one. Where £15,000 or more is outstanding immediately before a repayment and arrangements are already in place for replacement borrowing of £5,000 or more, the same matching applies with no 30-day window. The old balance stays chargeable.

What is the cleanest way to clear an overdrawn loan account?

The options are to pay cash back into the company, to declare a dividend if there are distributable reserves, to vote a bonus through payroll, or to have the company formally write the loan off. A dividend is usually the cheapest where reserves exist, because the dividend tax is the only cost. A write-off is the most expensive: it is taxed on you as a distribution and can attract National Insurance as well. Check the reserves position before anything is voted, because a dividend declared without distributable profit is unlawful and simply recreates the loan.

Limited Company Tax

An Overdrawn Director's Loan Account and the s.455 Charge

27 September 2026Contractor Tax Accountants Editorial Team5 min read

If your company has lent you money that is still outstanding nine months and one day after the year end, it pays a section 455 charge of 35.75% on loans made from 6 April 2026. The money comes back under section 458 once you repay, but the refund is deferred by another full year.

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Figures checked against primary sources (HMRC, legislation.gov.uk, HMRC IR35 guidance) in 27 September 2026.

Key takeaways

Section 455 is a deposit, not a permanent tax: the company pays 35.75% on a loan made on or after 6 April 2026 (33.75% on loans made before that date) that is still outstanding nine months and one day after the period end.
Section 458 relief gives the money back, but only nine months and one day after the end of the accounting period in which you repay, so a late repayment can leave the cash with HMRC for two years.
Repaying just before the year end and redrawing shortly afterwards does not work: section 464ZA matches the repayment against the new loan where £5,000 or more moves within 30 days, or where £15,000 or more is owed and replacement borrowing is already arranged.
A loan balance over £10,000 at any point in the tax year is also a beneficial loan benefit in kind unless you pay interest at the official rate, which means a P11D entry and employer Class 1A National Insurance.

Businesswoman calculates expenses using receipts and calculator at desk. Ideal for finance, accounting themes. — Photo: www.kaboompics.com / Pexels

Your company is a separate person from you, and a close company at that. If it pays money out to you that is not salary, a properly declared dividend or a reimbursed business expense, it has lent you the money. Where that loan is still outstanding nine months and one day after the end of the accounting period, the company pays a section 455 charge of 35.75% on loans made on or after 6 April 2026 (33.75% on loans made before that date). On a £30,000 balance that is £10,725 of company cash sent to HMRC. You get it back under section 458 once the loan is repaid, but not until nine months and one day after the end of the accounting period in which the repayment happens, which can be two years after the charge was paid.

How does a contractor's loan account go overdrawn?

Almost never on purpose. The usual pattern is drawings: you take a regular amount out of the company each month to live on, intending to cover it with dividends at the year end, and then the profit is not there, or the paperwork is never done. The other common routes are personal spending on the company debit card, the company settling a personal bill, and a dividend voted when the company has no distributable reserves to support it. That last one is not a dividend at all in law, so it lands back in the loan account.

Nothing is due while the balance sits there during the year. The charge only looks at what is still owed at the period end, and whether it is still owed nine months and a day later.

What does the section 455 charge actually cost?

The rate follows the dividend upper rate, so it is 35.75% for loans made on or after 6 April 2026 and 33.75% for loans made before that date. It is calculated on the balance outstanding at the period end that has not been cleared by the due date, reported on supplementary page CT600A, and paid with the corporation tax for that period.

Note what it is not. It is not a tax on you, and it is not deductible for the company. It is a deposit the company leaves with HMRC to remove the incentive to take money out as a loan rather than as a taxed dividend, which is why the rate matches the dividend rate you would otherwise have paid. It also means the company needs the cash on the due date whether or not you have the cash to repay the loan.

When do you get the money back?

Section 458 gives the charge back when the loan is repaid, released or written off. The timing is the part people miss. Relief is not paid when you repay. It is paid nine months and one day after the end of the accounting period in which the repayment falls. Repay a day into a new accounting period and you have added a full year to the wait.

How you claim depends on how long the loan ran. Within two years of the end of the accounting period in which the loan was made, you amend that company tax return. Beyond that you make a separate claim in writing, and the outside limit is four years from the end of the financial year in which the repayment happens. HMRC does not refund it automatically.

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Can you repay before the year end and take it out again?

This is the old bed-and-breakfasting pattern and it has been closed. Section 464ZA, inserted by Finance Act 2025 with effect from 30 October 2024, matches a repayment against new borrowing instead of against the old balance in two cases:

The 30-day rule. Repayments of £5,000 or more, followed within 30 days by new chargeable payments of £5,000 or more in a later accounting period. The repayment is treated as repaying the new loan.
The £15,000 rule. £15,000 or more outstanding immediately before the repayment, with arrangements already in place for replacement borrowing of £5,000 or more. No 30-day window applies here; the arrangement is enough.

In both cases the original balance is still outstanding and still chargeable. A genuine repayment funded from your own money, with no plan to redraw, is unaffected.

Is there a benefit in kind as well?

Yes, if the balance goes over £10,000 at any point in the tax year and you are not paying interest to the company at the official rate. The cheap loan is a taxable employment benefit, reported on form P11D, taxed on you and charged to employer Class 1A National Insurance on the company. Paying interest at the official rate removes the benefit, although that interest is then taxable income in the company. This is separate from section 455 and can apply even where the loan is cleared before the nine-month deadline.

What does the timing look like in practice?

The example below is worked from the rules set out above, for a company with a 31 March year end. The figures illustrate the mechanism; they are not a quoted case.

Date	Event	Amount
Year to 31 March 2027	Drawings accumulate, no dividend voted	£30,000 overdrawn
31 March 2027	Accounting period ends, balance still owed	£30,000
1 January 2028	Section 455 charge due at 35.75%	£10,725 paid to HMRC
30 June 2028	Loan repaid in full, inside the year to 31 March 2029	£30,000 repaid
1 January 2030	Section 458 relief paid back to the company	£10,725 refunded

The company is without £10,725 for two years, and a balance above £10,000 running on until the repayment also produces P11D benefit entries and Class 1A National Insurance in every tax year it is outstanding. Repaying on 30 March 2028 instead of 30 June would have brought the refund forward by a full twelve months.

What should you do if the account is already overdrawn?

Work out the period-end balance first, then the deadline, then which repayment route is realistic. Where the company has distributable reserves, voting a dividend to clear the account is usually cheapest, because the only cost is the dividend tax at the 2026/27 rates. Where reserves are thin, a bonus through payroll clears the balance but carries income tax and National Insurance. A write-off is the most expensive route and belongs last on the list.

The durable fix is upstream: set a salary and dividend level you can actually live on, and check the reserves before each dividend rather than after. The guides on the salary and dividend split and on corporation tax for a contractor company cover the profit side of that calculation. If the company is heading towards closure with a loan still outstanding, the balance has to be dealt with before the reserves are distributed, which is covered in closing a contractor limited company.

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Frequently asked questions

What is an overdrawn director's loan account?: It is a running record of money that has moved between you and your company outside salary, dividends and genuine expense reimbursement. The account is overdrawn when the company has paid out more to you, or on your behalf, than you have put in or been formally voted. For most contractors it builds up quietly: regular drawings taken through the year with the intention of covering them with a dividend later, personal spending on the company card, or a dividend declared without enough distributable profit to support it. The balance at the accounting period end is what matters for section 455.
How much is the s.455 charge for a contractor in 2026/27?: The rate tracks the dividend upper rate. It is 35.75% on loans made on or after 6 April 2026 and 33.75% on loans made before that date, applied to the balance still outstanding nine months and one day after the end of the accounting period. On a £30,000 loan made in the year to 31 March 2027 and still outstanding, the company owes £10,725. It is reported on form CT600A and paid alongside the corporation tax for that period.
How do I claim the s.455 tax back?: Section 458 relief is claimed once the loan is repaid, released or written off. If the repayment happens within two years of the end of the accounting period in which the loan was made, the claim can be made by amending the original company tax return; after that window you make a separate written claim, and the outside deadline is four years from the end of the financial year in which the repayment falls. Either way the money is not paid back until nine months and one day after the end of the accounting period in which you cleared the loan.
Is there a benefit in kind on a director's loan as well as s.455?: Yes, if the balance exceeds £10,000 at any point in the tax year and you are not paying interest at the official rate. The cash equivalent of the cheap loan is a taxable benefit under the beneficial loan rules in ITEPA 2003, reported on form P11D, taxed on you personally and charged to employer Class 1A National Insurance on the company. This sits on top of section 455, which is a company charge on the loan balance rather than a charge on you.
Can I clear the loan before the year end and take it out again afterwards?: Not reliably. Section 464ZA, inserted by Finance Act 2025 with effect from 30 October 2024, matches repayments to new borrowing in two situations. Where repayments of £5,000 or more are made and chargeable payments of £5,000 or more are made within 30 days, the repayment is treated as clearing the new loan rather than the old one. Where £15,000 or more is outstanding immediately before a repayment and arrangements are already in place for replacement borrowing of £5,000 or more, the same matching applies with no 30-day window. The old balance stays chargeable.
What is the cleanest way to clear an overdrawn loan account?: The options are to pay cash back into the company, to declare a dividend if there are distributable reserves, to vote a bonus through payroll, or to have the company formally write the loan off. A dividend is usually the cheapest where reserves exist, because the dividend tax is the only cost. A write-off is the most expensive: it is taxed on you as a distribution and can attract National Insurance as well. Check the reserves position before anything is voted, because a dividend declared without distributable profit is unlawful and simply recreates the loan.