Director's Loan Account Guide (2026/27)

1. Overview: what a DLA actually is

A Director's Loan Account is simply the running balance of money owed in either direction between a UK limited company and a person who is both a director and (usually) a shareholder. It is not a separate bank account: it is a nominal-ledger account inside the company's accounting system that records any cash or value moving between the company and the director outside the three formal channels of salary, reimbursed expenses and declared dividends. If the director draws £2,000 from the company bank account on a Tuesday for personal use, the bookkeeping posts it to the DLA. If the director pays a £500 supplier invoice on the company's behalf using their personal card, that also posts to the DLA but in the opposite direction.

The DLA matters for tax because UK corporation tax treats a close company and its directors as related parties whose transactions cannot be priced or timed for tax advantage. Without the DLA framework, a director could effectively extract company profits as a long-running interest-free loan, deferring dividend tax indefinitely. The rules in sections 455 to 464 of the Corporation Tax Act 2010 prevent that by imposing a refundable tax charge on outstanding balances. A parallel set of rules in the Income Tax (Earnings and Pensions) Act 2003 imposes a benefit in kind where the loan is interest-free or below HMRC's official rate. Together these mechanisms keep the loan route from becoming a back door around the dividend tax calculator rates or the headline Corporation Tax bill.

For a small-company director, the DLA is unavoidable bookkeeping. The relevant question is not whether you have a DLA - you do, the moment you draw anything outside salary and dividend - but whether the year-end balance is in credit, overdrawn within the safe £10,000 corridor, or overdrawn beyond it. The rest of this guide walks through each scenario and the tax cost.

2. DLA structure: credit, overdrawn, year-end

The DLA records every transaction between director and company that is not salary (which goes through PAYE), reimbursed business expense (which goes through the expenses ledger) or formally declared dividend (which goes through the dividends journal and the company secretarial records). Anything else - personal drawings, repayments, director paying a company invoice from a personal card, company paying a director's personal credit card by mistake - all flows through the DLA.

Credit DLA (company owes director). The account is in credit when the director has put more value into the company than they have taken out. The most common cause is the director paying for company expenses or supplier invoices from personal funds - travel, software subscriptions, hardware, professional fees. A credit DLA is effectively a loan from the director to the company. It can be repaid at any time without triggering any UK personal tax charge, because the director is recovering money they already paid out of post-tax personal income. Credit DLA withdrawals are not dividends and are not subject to PAYE. For directors who routinely fund company spend, keeping the DLA in credit is a small but real cashflow benefit - the company owes you, not the other way round.

Overdrawn DLA (director owes company). The account is overdrawn when the director has drawn more from the company than salary, expenses and declared dividends cover. This is the situation that triggers all the machinery in sections 3 through 6 of this guide. An overdrawn DLA is, in legal terms, a loan from the company to the director. The loan is a real debt - if the company is wound up, the liquidator will pursue the director for repayment - and the tax treatment cascades from that legal reality. There is no statutory de minimis for the loan itself: a £50 overdrawn balance is technically a loan, even though £50 is below the threshold for any of the practical tax charges.

Year-end balance is the key reference point. The accounting period of a UK company normally ends on the anniversary of its incorporation. The balance on the DLA at the close of business on that date drives the section 455 analysis. The benefit in kind analysis is different - it looks at the highest balance at any point during the tax year, not the year-end snapshot. So a director who briefly goes £15,000 overdrawn mid-year and clears the balance by year-end avoids section 455 but still owes BIK and Class 1A.

Reconciliation in practice. Bookkeeping software (Xero, FreeAgent, QuickBooks) tracks the DLA automatically. Most small-company accountants reconcile the DLA monthly and flag any drift towards the £10,000 BIK threshold or any accumulating overdrawn balance heading into the nine-month section 455 deadline. The single biggest source of accidental overdrawn DLAs is the director "paying themselves a dividend" verbally without the board-resolution paperwork - HMRC can reclassify that as drawings on the DLA on enquiry, which retrospectively creates a section 455 charge if the original transfer date was more than nine months before the period end.

3. Section 455 charge on overdrawn DLAs

Section 455 of the Corporation Tax Act 2010 imposes a Corporation Tax charge on a close company when it makes a loan to a participator (director, shareholder or close relative of either) and the loan is not repaid within nine months and one day of the accounting period end. The charge is currently 33.75% of the unrepaid balance, having been raised from 32.5% to 33.75% from 6 April 2022 to keep it aligned with the upper-rate dividend tax rate.

The nine-month rule. Section 455 is assessed on the position nine months and one day after the accounting period end. For a 31 March year-end the deadline is 1 January the following calendar year. A loan that existed mid-year but was cleared before the nine-month window closes does not trigger section 455 - the charge attaches only to balances still outstanding at that deadline. This is the practical reason most director loans are taken in the first half of the accounting period and cleared by net dividend or salary payments before year-end: the director gets short-term liquidity without triggering the corporation tax charge.

Worked example. Director draws £30,000 from the company on 1 May, posted to the DLA. The company's year-end is 31 March. By the following 1 January (the nine months and one day deadline) the director has not repaid any of it. Section 455 charge:

• Outstanding balance at deadline: £30,000
• Section 455 rate: 33.75%
• Section 455 charge: £10,125.00

The £10,125 is paid by the company through its CT600 corporation tax return (specifically boxes 95-100 in the loans-to-participators section). It is in addition to the company's normal Corporation Tax bill on its profits. The personal director does not get a separate PAYE charge from section 455 itself - section 455 is a corporate-level charge - but the loan is still a debt of the director and must be repaid to the company at some point.

Refund mechanism: the L2P claim. Section 455 is technically a deposit, not a permanent tax. Once the underlying loan is repaid, released or written off (with important caveats on write-offs - see section 5), the company can reclaim the 33.75% via HMRC form L2P, Claim repayment of tax paid by a close company on a loan to a participator. The refund window is four years from the end of the accounting period in which the loan was repaid. HMRC does not refund automatically: the L2P must be actively filed by the company. Once filed and processed, HMRC repays the original 33.75% in full. Note that interest does not accrue in favour of the company while HMRC holds the money - the section 455 charge is effectively an interest-free deposit with HMRC for the duration the loan is outstanding.

Continuing the worked example. Two years after the original loan, the director clears the £30,000 DLA balance from net dividend drawings. The company files form L2P naming the original accounting period, the repayment date and amount, and confirming no bed-and-breakfasting arrangement (section 6). HMRC refunds £10,125.00 to the company. The net economic cost of the loan is therefore the time value of having that £10,125.00 parked with HMRC for the intervening years, plus any benefit in kind charges along the way.

Authoritative HMRC guidance is at gov.uk loans and distributions to participators and the HMRC Company Taxation Manual at CTM61500 (the section 455 chapter). The gov.uk guidance on tax on loans to participators sets out the L2P claim process step by step.

4. Benefit in kind on interest-free loans

Section 455 is the corporate-level charge. Running in parallel, a separate set of rules in chapter 7 of part 3 of ITEPA 2003 (sections 173 to 191) imposes a benefit in kind on the director personally where the loan is interest-free or below HMRC's official rate of interest. The benefit is treated as employment income, taxable at the director's marginal Income Tax rate, and the company pays employer Class 1A NI on the same cash equivalent.

The £10,000 threshold. The benefit in kind rules apply only if the loan exceeds £10,000 at any point in the tax year. Crucially, the test is the maximum balance at any moment during the year - not the year-end balance, not the average. A director who briefly draws £12,000 in October and repays it three days later still has a beneficial loan benefit for the whole tax year, with the cash equivalent calculated by averaging the opening and closing balances (or, if the director elects, by the precise day-counting method).

The official rate of interest. HMRC's official rate of interest for beneficial loans is 3.75% for 2026/27 (carried forward from 2025-26 absent a published change). The rate is reviewed annually and published in HMRC's rates and allowances for beneficial loan arrangements. Compared to commercial mortgage and personal-loan rates, the official rate is deliberately low - reflecting the Treasury view that a beneficial-loan benefit should track a notional cost of funds rather than a high-street pricing structure. The benefit in kind cash equivalent is the loan balance multiplied by the official rate, minus any interest the director actually paid on the loan during the year.

Worked example. Director has a £25,000 interest-free loan from the company, outstanding for the full 2026/27 tax year. No interest paid by the director.

• Loan balance: £25,000
• HMRC official rate: 3.75%
• Cash equivalent of benefit: £937.50 per year
• Income Tax payable by director (40% higher-rate band): £375.00
• Class 1A NI payable by company: £140.63

The cash equivalent is reported on form P11D by the employer (the company). The director's PAYE tax code is adjusted in the following year to claw back the Income Tax on the benefit, or the director declares the benefit on their Self Assessment return. The Class 1A NI is paid by the company through its annual P11D(b) declaration, due by 6 July following the end of the tax year. For a higher-rate director, the combined cost on a £25,000 interest-free loan is therefore about £515.63 per year - modest compared to dividend tax on the same sum, which is why short loans within the corporate boundary remain a common cashflow tool.

Avoiding the BIK entirely. Two clean routes. First, keep the loan below £10,000 at every point in the tax year - the de minimis exempts the benefit entirely. Second, charge interest on the loan at or above the official rate, with the interest actually paid by the director to the company (not just accrued on paper). The interest paid then becomes taxable income of the company, but at Corporation Tax rates that are usually well below the combined personal IT + corporate Class 1A cost. The latter route is mechanically clean but rarely worth the paperwork on small balances.

Full HMRC guidance at gov.uk expenses and benefits loans provided to employees. Use our P11D / BIK calculator to model the after-tax cost of any benefit in kind including a beneficial director loan.

5. Loan write-off rules

A director loan that is never repaid can be written off in the company books. The accounting entry credits the DLA back to zero and debits the company's profit and loss. The tax treatment, however, is one of the messier areas of UK tax because two parallel sets of rules can both apply depending on the facts.

The default: dividend treatment. Under section 415 of ITTOIA 2005, the written-off loan is treated as a distribution from the close company to the director, taxed on the director as if it were a dividend. The amount written off is grossed up and assessed at the dividend rates: 8.75% within the basic-rate band, 33.75% within the higher-rate band, and 39.35% within the additional-rate band for 2026/27. The director declares this on the Self Assessment return as a deemed distribution. The dividend allowance (£500 in 2026/27) applies if not already used by other dividend income.

The section 455 refund stacks on top. Once the loan is written off, the underlying section 455 charge paid by the company two or three years earlier becomes refundable via form L2P, on the same basis as a normal repayment. So a write-off is, from the company's perspective, broadly tax-neutral - it gets the section 455 back. The director, however, pays dividend-equivalent tax on the full written-off amount. Net result: the loan ends up taxed roughly at the dividend rate, which is what section 455 was designed to ensure all along.

The HMRC challenge: employment income treatment. Where the director is also an employee of the company (which is almost universal in owner-managed PSCs), HMRC can argue that the write-off is really a reward for services rather than a distribution to a shareholder - and therefore employment income subject to PAYE Income Tax and Class 1 NI. The leading guidance is at HMRC Employment Status Manual at ESM7100, which sets out the factors HMRC weighs: whether the write-off is tied to performance, whether other employees have received similar treatment, whether there is a genuine commercial reason for the company writing off the debt (genuine inability to repay versus a tax-driven choice), and whether the director's shareholding is large enough that the distribution route is the more natural reading.

The PAYE / Class 1 NI route is more expensive than the dividend route for a higher-rate director: 40% Income Tax + 2% employee NI + 15% employer NI on the gross-up, versus 33.75% dividend tax with no NI on either side. HMRC's challenge most commonly succeeds where the company is solvent and could have repaid the loan from reserves - then the write-off looks discretionary and reward-shaped. It most commonly fails where the company is genuinely insolvent or the director has clearly lost the ability to repay (medical incapacity, bankruptcy of related party, etc).

Practical guidance. Document the commercial reason for any write-off contemporaneously: board minutes, evidence of inability to repay, comparable treatment of any other participators in similar circumstances. If the write-off is large (over £25,000) and the company is otherwise solvent, get an external tax opinion before processing - the dividend-versus-employment analysis is fact-sensitive and an HMRC enquiry is reasonably likely.

6. Bed-and-breakfasting anti-avoidance

Before March 2013, a director could clear an overdrawn DLA a day before the nine-month section 455 deadline, then take a new loan the day after, and reset the section 455 clock indefinitely. The accounting period that ended last year was clear; the new accounting period had not begun for section 455 purposes; the loan effectively rolled over with no tax cost. HMRC characterised the pattern as "bed-and-breakfasting" by analogy to the pre-1998 capital gains practice of selling shares overnight to crystallise gains.

The 30-day rule. From 20 March 2013, two anti-avoidance rules in sections 464A and 464B of the Corporation Tax Act 2010 block the pattern. The narrower rule applies where:

• A director repays at least £5,000 of an outstanding loan; AND
• A new loan or advance of at least £5,000 is made to the same participator within 30 days of the repayment; AND
• The two transactions are not part of the ordinary running of the company.

When triggered, the original loan is treated as never having been repaid for section 455 purposes. The L2P refund is blocked. The company pays the 33.75% as if the repayment had not happened, and a fresh section 455 charge can attach to the new loan if it is itself unrepaid by the next nine-month deadline.

The wider "arrangements" rule. Section 464B catches schemes designed to sidestep the 30-day rule - typically by leaving a 31-day gap, or by routing the repayment through an associate or family member. Where arrangements are in place, in whole or in part, to obtain a tax advantage by replacing the repaid loan with a new one, the original loan is again deemed unrepaid for section 455. The wider rule has no fixed numerical threshold; it is a principles-based test that HMRC applies on enquiry. In practice, the 31-day-and-one-second pattern is exactly the target of section 464B and will be successfully challenged.

What still works. A genuine repayment from personal post-tax funds (net salary, net dividend from a separate company, savings) followed by no further loan is always effective. A repayment by declaring a dividend (the most common method - declare a dividend equal to the DLA balance and offset rather than physically moving cash) is effective because there is no new loan involved. What does not work is repaying from a loan and then taking another loan; the substance of the arrangement is unchanged and the anti-avoidance rules catch it.

7. Loan vs salary vs dividend

The three routes for getting cash out of a personal service company are not interchangeable. Each carries a distinct tax cost. The director loan route is sometimes presented as a fourth option but is really only a timing variant - the cash has to come out via one of the three permanent routes eventually.

Comparing £20,000 extraction from a PSC with £100,000 of pre-tax profit. All figures use 2026/27 rates and assume the director is solidly in the higher-rate band on other income.

Route 1: Salary £20,000. The company pays employer NI of 15% on the salary above £5,000, costing the company £2,250 in employer NI, plus the £20,000 wages. Both figures are corporation tax deductible. The director pays Income Tax at 40% (£8,000) and employee NI at 2% (£400) on the salary. Net to director: £11,600. Total tax burden (employer NI + IT + employee NI): £10,650. Net cost to the company before CT relief: £22,250.

Route 2: Dividend £20,000. The £20,000 has already borne Corporation Tax at the company level (assume 19% small-profits rate: pre-CT profit £24,691 produces £20,000 post-CT distributable). Dividend tax at 33.75% on the £20,000 (assuming the £500 allowance is already used) gives £6,750 of personal tax. Net to director: £13,250. Total tax: £4,691 (CT) + £6,750 (dividend) = £11,441. Marginally more expensive than salary because the CT step is irrecoverable, but no NI on either side. For higher earners with multiple income sources the dividend route often wins because the 40% IT + 2% employee NI + 15% employer NI on salary tips the balance.

Route 3: Director loan £20,000. No immediate personal tax. If repaid within the nine-month window, no corporate tax. If the loan is at zero interest and exceeds £10,000 at any point in the tax year: benefit in kind of £20,000 × 3.75% = £750.00 per year of borrowing, with 40% Income Tax (£300.00) and 15% Class 1A (£112.50). If unrepaid at the nine-month deadline: section 455 of 33.75% × £20,000 = £6,750, refundable eventually but parked with HMRC until repayment. The loan itself remains a debt of the director and has to be cleared by either repaying from net dividend / salary (in which case one of the first two routes is paying the tax) or being written off (in which case the dividend or employment treatment in section 5 applies).

When the loan route makes sense. Short-term cashflow: the director needs £8,000 in February for a personal commitment and will repay from a March dividend. No section 455 (cleared before nine-month deadline). No BIK (below £10,000). Genuinely free money in tax terms because the dividend that ultimately funds the repayment was always coming anyway.

When the loan route gets expensive. Persistent overdrawn balance left running year after year. Annual BIK + Class 1A. Section 455 cash trapped with HMRC. No personal tax advantage versus simply declaring the dividend and paying the dividend tax once. The loan route is a deferral mechanism, not a saving mechanism - and the deferral has a real cost in BIK and section 455 cashflow. Run your own numbers with the contractor calculator to see the dividend-vs-salary mix that suits your gross profit and personal income shape.

8. Practical compliance

Day-to-day DLA management is straightforward bookkeeping with a handful of statutory touchpoints across the year.

Monthly reconciliation. Modern cloud accounting software (Xero, FreeAgent, QuickBooks Online) tracks the DLA as a standard ledger account. Most small-company accountants reconcile the DLA at the same time as the bank reconciliation each month and flag any drift towards the £10,000 BIK threshold or any accumulating overdrawn balance. Catching an overdrawn position six months before year-end usually allows enough time to declare a dividend or run additional salary to clear it before the nine-month deadline closes.

CT600 boxes 95-100. The corporation tax return CT600 has a dedicated section for loans to participators (the "Loans to participators by close companies" supplementary boxes). The company reports the loans made and repaid in the period, the balance outstanding nine months after the period end, and the section 455 charge due. Most accounting software prepares this section automatically from the DLA ledger. Filing the CT600 is mandatory within 12 months of period end, with the tax (including section 455) due nine months and one day after period end. See gov.uk CT600 guidance for the current form structure.

L2P claim post-repayment. Once an overdrawn DLA is cleared (by genuine repayment, not bed-and-breakfasting), the company can claim the section 455 refund via form L2P. The form can be filed online or by post and identifies the original accounting period, the repayment date and amount, and confirms that section 464A (bed-and-breakfasting) does not apply. The four-year claim window starts from the end of the accounting period in which the repayment was made.

P11D reporting. Beneficial loans above £10,000 at any point in the tax year must be reported on form P11D for the director, due by 6 July following the end of the tax year. The cash equivalent is calculated by either the average method (opening + closing balance / 2 × official rate × proportion of year) or the precise day-counting method (election by the employer). Class 1A NI on the same cash equivalent is paid by the company by 22 July through the P11D(b) return.

HMRC enquiry triggers. A pattern of large overdrawn DLAs with repeat repayment-and-reborrowing in consecutive years is a known enquiry flag, particularly where the repayment looks suspiciously close to year-end and the new loan appears shortly afterwards. HMRC's CONNECT system cross-references CT600 disclosures, P11D filings and bank-derived data to identify cases worth a closer look. Documentation of genuine commercial reasons for any pattern, contemporaneous board minutes and clean separation between dividend declarations and DLA movements are the best protection against enquiry escalation. The Self Assessment step-by-step guide covers the personal-tax side of declaring beneficial-loan benefits and loan write-offs.

9. DLAs in dissolved companies

If a close company is struck off the register at Companies House with an unrepaid director loan still outstanding, the loan does not disappear. HMRC retains the right to pursue the director personally, and the routes available are not symmetrical with the going-concern position.

Where the company was solvent at the date of dissolution and the loan represented an extraction of value to the director-shareholder, HMRC will typically reclassify the outstanding balance as either an illegal dividend (under Companies Act 2006 rules on distributions from non-distributable reserves) or as undeclared employment income subject to PAYE Income Tax and Class 1 NI. Illegal dividends are recoverable from the recipient by the Crown as successor to the dissolved company's claims; PAYE reclassification triggers a personal tax bill at the director's marginal rate plus employer NI assessed on the director where the employer no longer exists. Either way, the section 455 paid by the company before dissolution is lost - the L2P refund route requires a corporate claimant, and a struck-off company cannot file claims.

The practical lesson: where a company is heading for strike-off (voluntary dissolution under section 1003 or compulsory dissolution by the Registrar), clear any overdrawn DLA before the strike-off application is filed. The cheapest route is usually a final dividend declared from any remaining reserves, offsetting the DLA. If reserves are insufficient, a members' voluntary liquidation is preferable to dissolution-with-overdrawn-DLA because the liquidator can formally write off the debt under section 415 ITTOIA, locking in dividend treatment rather than risking HMRC reclassifying it as employment income post-strike-off.

10. Frequently asked questions

What is the section 455 rate for an overdrawn director loan?

The section 455 charge rate is 33.75% from 6 April 2022 onwards. It applies to any director loan balance still outstanding nine months and one day after the company's accounting period end. The rate was deliberately aligned with the upper-rate dividend tax rate so directors cannot extract value via a long-running loan at a cheaper rate than declaring a dividend. The charge is paid by the company through its CT600 return.

Can I take a director loan without paying tax?

Yes, if you repay the loan within nine months and one day of the company's accounting period end, and the balance never exceeds £10,000 at any point in the tax year. Under those conditions there is no section 455 charge and no benefit in kind. Short-term cashflow loans repaid quickly from net dividend or salary are the most common use of a director loan account.

Do I pay tax on interest-free director loans?

Yes if the loan exceeds £10,000 at any point in the tax year and you pay no interest, or interest below HMRC's official rate of 3.75%. The benefit equals the loan multiplied by the official rate minus any interest you actually paid. The benefit is reported on form P11D and taxed at your marginal Income Tax rate. The company also pays Class 1A National Insurance at 15% on the cash equivalent.

Can I claim section 455 back when I repay the loan?

Yes. Section 455 is technically a temporary charge, refundable in full once the underlying loan is repaid, released or written off. The refund is claimed via form L2P and can be claimed up to four years after the end of the accounting period in which the loan was repaid. The refund is not automatic - the company must actively file the L2P claim. HMRC will then repay the tax, but no interest is added unless the refund is delayed beyond a statutory window.

What happens if my company writes off a director loan?

A written-off director loan is treated as a distribution and taxed on the director as if it were a dividend, at the dividend rates of 8.75% basic, 33.75% higher and 39.35% additional in 2026/27. The original section 455 charge is also refundable to the company once the write-off is processed. In some circumstances HMRC may instead treat the write-off as employment income subject to PAYE and Class 1 NI - typically when the director is also an employee and the write-off appears to reward employment services rather than reflect a genuine inability to repay.

Does the £10,000 BIK threshold apply at any point in the year or just at year-end?

The £10,000 threshold for a beneficial loan benefit in kind applies if the loan exceeds £10,000 at any point in the tax year - even for a single day. The test is the highest balance during the year, not the average and not the year-end balance. A director who briefly draws £15,000 in October and repays it the same week still has a reportable beneficial loan benefit for the whole tax year, with the cash equivalent calculated using the average-balance method on form P11D.

Is bed-and-breakfasting director loans still allowed?

No. The anti-avoidance rules introduced on 20 March 2013 block the bed-and-breakfasting pattern. If you repay a director loan and a new loan of £5,000 or more is advanced within 30 days of the repayment, the original loan is treated as never having been repaid for section 455 purposes. There is also a wider anti-avoidance rule for arrangements connected with the repayment, so even a 31-day gap can be challenged if HMRC can show the repayment was part of a wider plan to reset the section 455 clock.

When is a director loan more tax-efficient than a dividend?

A director loan is more efficient than a dividend only for short-term timing differences. If you can repay within nine months and one day of year-end out of post-tax personal funds, you defer the dividend tax charge but never avoid it. The loan is never genuinely cheaper than a dividend - if the loan is left outstanding it triggers a 33.75% section 455 charge, which matches the upper dividend rate. Use a loan for cashflow smoothing, not for tax planning.

Does section 455 apply to LLPs and ordinary partnerships?

No. Section 455 applies only to close companies - that is, UK limited companies controlled by five or fewer participators or any number of director-participators. Limited liability partnerships and ordinary partnerships are not close companies and therefore have no equivalent loan charge. However, partners drawing more than their share of profits face other tax mechanics around overdrawn capital accounts and may face HMRC challenge if drawings are characterised as employment income.

Can my spouse take a director loan?

Yes, but only if your spouse is a participator in the close company - which usually means they are a shareholder. Section 455 catches loans to any participator or associate of a participator, so a loan to a director's spouse is still subject to the same 33.75% charge if outstanding nine months and one day after year-end. The benefit in kind rules also apply where the loan exceeds £10,000 at any point in the tax year, regardless of whether the spouse is on the payroll.

What is the L2P claim form?

Form L2P is the HMRC document used to claim a refund of section 455 tax once a director loan has been repaid, released or written off. It must be filed by the company - the director cannot claim personally. The form requires the original accounting period in which the s455 charge was paid, the date and method of loan repayment, and confirmation that the bed-and-breakfasting rules are not engaged. Refunds are typically processed within a few weeks of filing.

What if my company is struck off with an overdrawn DLA?

If a close company is dissolved with an overdrawn director loan account, HMRC can pursue the director personally for the unrepaid balance. The outstanding amount is typically reclassified as either an illegal dividend (recoverable under the Companies Act 2006 if the company had insufficient distributable reserves) or as undeclared employment income subject to PAYE and Class 1 NI. The section 455 charge remains payable by the company until refunded, and the director loses the L2P refund route once the company is struck off without proper liquidation.

11. Related calculators and guides

• Dividend tax calculator - the route most often used to clear an overdrawn DLA.
• Corporation Tax calculator - model the CT bill before considering section 455.
• Contractor calculator - salary versus dividend mix for a PSC director.
• Self Assessment step by step - declaring beneficial-loan benefits on the director's personal return.
• How UK tax works - the broader UK tax primer.
• UK tax relief guide - reliefs that interact with PSC director income.
• P11D / BIK calculator - cash equivalent of an interest-free loan and other benefits.
• SalaryTax methodology - how every figure on this guide is sourced and verified.