Director's loan account: 2026/27

Director's Loan Account & Section 455 2026/27: DLA Tax Calculator

Q: What about salaries paid via DLA at year-end?

NOT a Section 455 avoidance route. A retrospective salary "voted" after year-end to clear a DLA is heavily scrutinised by HMRC. Salaries must be paid via PAYE through the company's payroll system, with PAYE income tax and NI properly accounted for and reported via Real Time Information (RTI). Voting a £30k salary in February for the year ending 31 March doesn't work if the salary wasn't recorded in PAYE / RTI during the year. The legitimate alternatives: (1) Pay a real salary monthly via PAYE during the year that absorbs the DLA - planning ahead. (2) Pay a bonus in March via PAYE that clears the DLA - works if recorded through payroll. (3) Vote a dividend via shareholder resolution before year-end - works because dividends are voted, not paid through PAYE. The frequent practical pattern: account for DLA monthly and either pay-down via real cash, or by interim dividend resolutions, OR by adjustments to upcoming planned bonus / salary. Don't leave year-end DLA cleanup to a single end-of-year journal entry.

Complete guide to director's loan account (DLA) taxation in 2026/27. Section 455 Corporation Tax at 33.75% on any overdrawn DLA balance unrepaid within 9 months and 1 day of the company year-end. Benefit-in-kind charge on "cheap interest" for loans exceeding £10,000 at HMRC's 2.25% official rate. Bed-and-breakfasting anti-avoidance (30-day and arrangements rules). Refund mechanism via Form L2P. 4 worked scenarios from small £8k under-threshold loan to £100k partially-repaid balance.

DLA tax framework at a glance

Section 455 charge

33.75%

On year-end overdrawn DLA unrepaid within 9m1d. Refundable when repaid (Form L2P).

BIK official rate

2.25%

Applied to loans over £10,000. Director taxed at marginal IT; company pays 15% Class 1A NI.

£10k de minimis

No BIK

If max balance during the tax year stays under £10,000, BIK does NOT apply. Section 455 still does.

4 worked DLA scenarios

Scenario	Balance	Section 455	BIK value	BIK IT + Class 1A	Total tax cost
Small loan, repaid in time Under £10k = no BIK regardless. Repaid in 9m1d window = no Section 455.	£8,000	£0	£0	£0	£0
Mid loan, not repaid Over £10k = BIK on full official-rate interest. Not repaid = Section 455 triggers.	£30,000	£10,125	£675	£371	£10,496
Large loan, partial repayment Year-end £60k outstanding triggers Section 455 on the £60k. £40k already repaid.	£60,000	£20,250	£2,250	£1,350	£21,600
Large loan, interest paid Director pays interest at full 2.25% official rate = no BIK. Section 455 still applies.	£50,000	£16,875	£0	£0	£16,875

Section 455 timeline - the 9-month-1-day rule

During year: Director draws cash from company beyond salary + dividends + expenses. DLA balance accumulates. No tax yet.
Company year-end: Snapshot of DLA balance taken. If overdrawn (director owes company), the clock starts.
9 months and 1 day after year-end: Last chance to repay (or clear via dividend / bonus). If still overdrawn, Section 455 triggers.
Section 455 paid: 33.75% × outstanding balance, paid as part of the company's Corporation Tax bill.
Director repays loan later: At any point in any subsequent year, by cash repayment, dividend, salary, or write-off.
9 months after repayment year-end: Section 455 refund paid (Form L2P claim). Total time tax tied up: depends on when repaid relative to year-end.

Worst case: repay loan on day 1 of new accounting year = 21 months between Section 455 payment and refund. Best case: repay just before 9m1d deadline = no Section 455 ever triggered. Most accountants advise resolving DLAs at each year-end to avoid the cash-flow drag.

Bed-and-breakfasting anti-avoidance

Sections 464A-C CTA 2010 (introduced April 2013) block the obvious "repay before 9m1d, re-borrow next week" trick. Three rules:

30-day rule: if you repay £5,000+ and then re-borrow £5,000+ within 30 days, the repayment is treated as having matched against an earlier advance, leaving the current period's loan still effectively outstanding.
Arrangements rule: if at the time of repayment there were arrangements (formal or informal) for further advances totalling £15,000+, the repayment is similarly disregarded. Wider net than the 30-day rule.
Genuine economic substance: HMRC may challenge any repay-then-re-borrow pattern that lacks commercial substance, even if outside the 30-day / £15,000 thresholds, under general anti-avoidance principles.

Section 455 can only be cleanly avoided by: (a) genuine cash repayment without re-borrowing, (b) voting a real dividend (triggers personal Income Tax at dividend rates - usually 8.75% / 33.75% / 39.35% depending on band - so often comparable in tax cost to leaving Section 455 outstanding), (c) paying a salary / bonus via PAYE that clears the balance, (d) writing off the loan (creates personal income at dividend rates).

Frequently asked questions

What is a director's loan account (DLA)?

A DLA is the running ledger account in your limited company's books recording everything you've taken out vs put in as a director / shareholder, OTHER than legitimate salary, expenses, and dividends. Drawing money from the company beyond salary + dividends + expense reimbursements creates an OVERDRAWN DLA - effectively a loan from the company to you. Lending money to the company creates a CREDIT DLA balance - the company owes you. The accounts are kept by your accountant or via accounting software (Xero, FreeAgent, Sage). DLA balances are reported on the company's annual accounts (CT600 box 410 plus DLA note in the financial statements). HMRC scrutinises DLAs because they're a common route for tax-avoidance: founders extracting cash as "loan" instead of taxable dividend to defer or avoid Income Tax. Section 455 CTA 2010 + ITEPA 2003 sections 173-191 are the anti-avoidance framework.

What is Section 455 tax and when does it apply?

Section 455 CTA 2010 imposes a 33.75% Corporation Tax charge on any overdrawn DLA balance that remains UNREPAID nine months and one day after the company's year-end. The deadline aligns with the normal Corporation Tax payment due date. Worked example: company year-end 31 March 2026. Director draws £30,000 net of salary / dividend during the year. At 31 March 2026 the DLA shows £30,000 overdrawn. Deadline to repay (or clear via dividend / bonus / written-off in tax-efficient way): 1 January 2027. If still outstanding on 2 January 2027: company pays £30,000 × 33.75% = £10,125 of Section 455 tax. This is on TOP of any BIK income tax / NI on cheap interest if the loan exceeded £10,000. Section 455 is REFUNDABLE when the loan is repaid (or written off) - claim via Form L2P, paid 9 months after the year-end in which repayment occurred. Effectively an interest-free loan to HMRC during the gap.

How is the cheap-interest benefit-in-kind calculated?

If your DLA balance EVER exceeds £10,000 during a tax year (Section 175 ITEPA 2003), you have a "cheap loan" benefit-in-kind unless you pay the company interest at HMRC's "official rate". For 2026/27 the official rate is 2.25% per annum (set by HMRC quarterly, can change mid-year). Calculation methods: Strict / average method (default) - BIK value = ((opening + closing balance) / 2) × official rate. Alternative / precise method - calculate daily interest at official rate, less interest actually paid by director. The director can elect for alternative if more favourable. The BIK value is taxed via the director's personal tax return at marginal Income Tax rates 40% / 45% PLUS the company pays Class 1A employer NI at 15% on the BIK. Worked example: £30,000 average DLA balance × 2.25% = £675 BIK. Higher-rate director pays £270 IT; company pays £101 Class 1A NI = £371 total cost. Pay 2.25% interest to the company yourself = zero BIK (but the company has £675 of taxable income).

Can I avoid Section 455 by repaying then re-borrowing?

No - this is "bed and breakfasting" and explicitly anti-avoided by Sections 464A-C CTA 2010 since April 2013. Three anti-avoidance rules: (1) 30-day rule - if you repay £5,000+ and then re-borrow £5,000+ within 30 days, the repayment is treated as having matched against an EARLIER advance, not against the current outstanding balance. Defeats the "repay just before 9m1d, re-borrow next week" trick. (2) Arrangements rule - if at the time of repayment there were any arrangements (formal or informal) for the director to receive further advances totalling £15,000+, the repayment is similarly disallowed. Wider net than the 30-day rule. (3) "Bed and breakfast" using dividend - voting a dividend to clear the DLA and then immediately re-drawing on the cleared DLA still works, BECAUSE the dividend creates real taxable income (no avoidance). But if the dividend is later revoked / reversed, HMRC can challenge as sham. Bottom line: Section 455 can only be cleanly avoided by (a) genuine repayment in cash without re-borrowing, (b) voting a legitimate dividend that triggers personal income tax, (c) writing off the loan (which creates personal income for the director taxable at dividend rates).

How do I get the Section 455 tax refunded?

Submit Form L2P (Director's loan repayments and section 455 tax claim) when the loan is repaid, dividend is voted to clear it, or the company writes it off. Refund is paid 9 months after the END of the company's accounting period in which the repayment / dividend / write-off happened. NOT immediately upon repayment - this is the cash-flow cost of Section 455. Worked example: company year-end 31 March 2026, Section 455 paid £10,125 on 1 January 2027. Director repays loan in cash on 1 July 2027. Company year-end 31 March 2028 includes the repayment. L2P claim filed alongside the CT600 for 2027/28 accounting period. Refund paid 1 January 2029 (9 months after 31 March 2028 year-end). Total cash tied up: £10,125 for 2 years. Effective opportunity cost at 5% pa: ~£1,000 of foregone investment return. Form L2P is filed online via HMRC's Corporation Tax service; manual paper option available. The refund is not interest-bearing - HMRC does not pay interest on the £10,125 sitting with them.

What if the company writes off the DLA balance?

Writing off the loan releases the director from repayment obligation. Two tax events trigger: (1) Director side: the written-off amount is treated as a DISTRIBUTION (dividend) for tax purposes (Section 415 ITTOIA 2005) - taxed at dividend rates 8.75% / 33.75% / 39.35% in the director's hands. So a £30,000 write-off by a higher-rate director triggers £10,125 of dividend tax. (2) Company side: NO Corporation Tax deduction for the written-off amount (NOT a tax-deductible expense). Loss is borne by company shareholders. The Section 455 tax is REFUNDED when the write-off happens (subject to 9-month-after-year-end timing). HMRC's anti-avoidance rules can re-classify a "write-off" as still-effectively-receivable if the company's accounting treatment doesn't genuinely de-recognise the asset. Write-off vs dividend: economically often equivalent for the director (both trigger dividend-rate tax), but write-off requires formal board / shareholder resolution and updated company accounts.

Can I just leave the DLA overdrawn indefinitely?

Possible but expensive. The 33.75% Section 455 tax is a one-off charge that's refundable when finally repaid - it's not annual. But the BIK on cheap interest IS annual if the loan exceeds £10k. So a £100k DLA balance left outstanding for 5 years incurs: £33,750 Section 455 (refundable) + 5 × (£2,250 BIK × marginal IT + £338 employer NI) = £33,750 capital tied up + ~£15,000 of annual personal+employer tax compounded. Plus the audit / accountant / HMRC enquiry friction. Most accountants advise resolving the DLA at each year-end via one of: (a) repay in cash from personal funds, (b) vote a dividend to clear, (c) increase salary to clear, (d) formally write off. The "wait and see" approach is rarely tax-optimal. HMRC's Targeted Anti-Avoidance Rule (TAAR) Section 396B ITTOIA 2005 can re-classify long-running DLAs as dividends if the structure has no commercial purpose - particularly relevant where the director is also a major shareholder.

What about salaries paid via DLA at year-end?

NOT a Section 455 avoidance route. A retrospective salary "voted" after year-end to clear a DLA is heavily scrutinised by HMRC. Salaries must be paid via PAYE through the company's payroll system, with PAYE income tax and NI properly accounted for and reported via Real Time Information (RTI). Voting a £30k salary in February for the year ending 31 March doesn't work if the salary wasn't recorded in PAYE / RTI during the year. The legitimate alternatives: (1) Pay a real salary monthly via PAYE during the year that absorbs the DLA - planning ahead. (2) Pay a bonus in March via PAYE that clears the DLA - works if recorded through payroll. (3) Vote a dividend via shareholder resolution before year-end - works because dividends are voted, not paid through PAYE. The frequent practical pattern: account for DLA monthly and either pay-down via real cash, or by interim dividend resolutions, OR by adjustments to upcoming planned bonus / salary. Don't leave year-end DLA cleanup to a single end-of-year journal entry.

Does Section 455 apply to all companies?

Section 455 applies to "close companies" - broadly companies under the control of 5 or fewer participators OR companies controlled by participators who are directors (Section 439 CTA 2010). This covers virtually all owner-managed limited companies and personal service companies. Exclusions: (1) listed companies, (2) subsidiaries of listed companies where the parent is non-close, (3) companies with widely-dispersed shareholdings (rare in practice for SMEs). The "participator" concept includes directors, shareholders, and certain associates of those people. Section 455 also applies to loans to "associates" of participators - so a loan from your company to your spouse / civil partner / parent / child / sibling triggers Section 455 in the same way as a loan to you directly. This catches the family-member workaround. Money lent for genuine commercial purposes (e.g. a loan to a key employee for housing) can sometimes escape Section 455 via the "qualifying loan" exemption under Section 459 - rare in owner-managed contexts.

What is the HMRC official rate for 2026/27?

The official rate is currently 2.25% (held throughout 2025/26 and into 2026/27 by HMRC notice). HMRC sets and publishes the rate via The Taxes (Interest Rate) Regulations 1989 (SI 1989/1297) - reviewed quarterly though changes are infrequent. Historical rates: 2.5% (April 2020 - April 2023), 2.25% (April 2023 onwards). The rate is connected to but not identical to the Bank of England base rate - it follows market conditions broadly but is set at a "reasonable rate that approximates a normal commercial loan to a director / employee" rather than tracking BoE moves exactly. Used for: BIK valuation on employer-provided cheap loans (this calculator's main use), property-rental imputed interest, certain other employment-income computations. Current rate confirmed in HMRC's official-rate-of-interest publication, updated monthly. Always check the rate at the time of the BIK assessment - mid-year changes apply pro-rata.

Can my company lend to me for buying a main home?

Yes - and this is the most common scenario for sub-£10,000 DLAs. A company loan to a director for a main home purchase falls under the same Section 455 + BIK framework as any other DLA, no special exemption. BUT if the loan stays under £10,000 throughout the tax year, there is NO BIK charge regardless of the interest rate paid - the £10k de minimis (Section 180A ITEPA 2003) covers all "cheap loan" benefits aggregated. So a company can lend a director £9,000 for any purpose, interest-free, without triggering BIK. The Section 455 33.75% still applies if not repaid within 9m1d though. Most useful pattern: short-term bridging loan from company to director during a property transaction, repaid within 9 months from refinancing or sale proceeds. Above £10,000 the BIK applies on the full amount (not just the excess over £10k). Hard cliff at £10,000. Many small business owners keep the running balance under £9,000 specifically to avoid this.

Other tax planning around DLAs?

Annual planning checklist for limited-company directors: (1) Review DLA balance 3 months before year-end - decide whether to repay, vote dividend, or accept Section 455 hit. (2) Keep loan under £10,000 at all times to avoid BIK if you don't want to pay official-rate interest. (3) If approaching £100k+ DLA, consider alternative structure - selling shares to a family member (creating loan to them not you), or paying a one-off pension contribution to extract profits without dividend tax. See optimum director salary 2026/27. (4) Salary sacrifice into pension to reduce future need for cash extraction. (5) Bonus instead of large dividend at year-end to settle DLA via PAYE rather than dividend - same tax cost but different cash-flow timing. (6) For dormant or solvent winding-up scenarios, consider MVL (Members' Voluntary Liquidation) at CGT BADR rates 10% instead of dividend rates 39.35% - CGT calculator. (7) Keep written agreement of loan terms (even informal note) - HMRC challenges undocumented DLAs as deemed-dividends.

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