What to do if you take money without a declared dividend
You should act quickly and contact us if you do this
If money leaves the company to you outside of salary or a formally declared dividend, it is treated as a director's loan. This has tax consequences if not handled correctly.
Director's loan and Section 455 tax
An overdrawn director's loan account (money taken from the company in excess of what is owed to you) incurs a Corporation Tax charge of 35.75% (Section 455 tax) if not repaid within nine months of the year-end. This charge is refundable once the loan is repaid, but it creates a cash flow problem until then.
The solution
Before taking any significant sum from the company outside payroll, contact us. We check the retained earnings position and declare a dividend formally if reserves allow. This avoids an overdrawn director’s loan account (DLA) and the Section 455 charge. We also retrospectively regularise past payments if the DLA is already overdrawn.
💡 Important: Check your DLA balance in Xero monthly. A growing overdrawn DLA that is not converted to a dividend before the year-end will result in a Section 455 tax charge. If the loan is above £10,000 at any point during the year and no interest is paid by the director, the director will incur a taxable benefit in kind to be added to their P11D.
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