Managing your Director's Loan Account
Credits and debits, the section 455 charge, and relevant tax rates - explained
The Director's Loan Account (DLA) records money flowing between you and your company outside of salary and dividends. Keeping it in check prevents unexpected tax charges.
Credits and debits
The DLA moves into credit when you put personal money into the company or pay a business cost personally. It becomes overdrawn when you take out more than your salary and any declared dividends. A credit balance can be withdrawn tax-free at any time; an overdrawn balance is a loan from the company to you.
The Section 455 charge on an overdrawn loan
If your DLA is overdrawn at your year-end and is not repaid within nine months and one day, the company pays a Corporation Tax charge (Section 455 tax) on the balance. It is not a penalty but a timing tax: the company reclaims it once the loan is repaid, but not until nine months and one day after the end of the accounting period in which it is cleared, so the cash can be tied up well over a year. Clearing the loan before the nine-month deadline, so the charge never arises, is usually preferable.
The rate, and the April 2026 increase
The Section 455 rate is aligned with the higher rate of dividend tax, so it rose when dividend tax rose in April 2026. It is 35.75% for loans made on or after 6 April 2026, and 33.75% for loans made before then, so a £20,000 balance from new borrowing produces a £7,150 charge. Where a balance spans the change, each rate applies to the relevant portion, and HMRC treats repayments as clearing the oldest borrowing first, unless you specify otherwise. We calculate this and advise on the most efficient way to clear the balance.
💡 Good to know: Keep an eye on your DLA through the year, as an overdrawn balance is easier to manage before the year-end than after. You can clear it by repaying the loan or, where there are sufficient profits, declaring a dividend. Tell us if it is overdrawn or you expect it to be, and we will advise on the most efficient way to regularise it. Note that a loan over £10,000 can create a separate benefit-in-kind charge even if the Section 455 position is managed.
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