A director's loan arises when a director takes money out of their PSC that is not salary, a dividend, or a repayment of money they had previously lent the company. A PSC is a close company, so an overdrawn director's loan account (drawings taken ahead of declared profit) triggers a section 455 charge.
The company pays corporation tax at the dividend upper rate on the loan still outstanding 9 months and 1 day after the period-end. That rate is 33.75% on loans made before 6 April 2026 and 35.75% on loans made on or after 6 April 2026, tracking the Finance Act 2026 s.4 dividend upper rate. The charge is temporary: s.458 relief repays it once the loan is repaid, released or written off, but the relief is deferred to 9 months and 1 day after the end of the accounting period in which repayment occurs. Section 455 is therefore not a permanent tax, but it is a real cash-flow cost.
A separate issue arises where the loan exceeds £10,000 at any point in the year: that creates a beneficial-loan benefit in kind unless interest is paid at HMRC's official rate. The statutory hooks are CTA 2010 s.455 (charge), s.458 (relief) and s.464A onward. When the time comes to extract retained reserves and close the company, see MVL and the TAAR.