UK Director's Loan tax exposure.
Total tax exposure
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Section 455 (33.75%)
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BIK on loan above £10K
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Your breakdown
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What an overdrawn director's loan actually triggers
If you are the director of a small limited company and you take money out that is not salary, dividend, or a repayment of money you put in, you create a director's loan. The account is overdrawn when the company has lent you more than you have lent it. HMRC treats that as a quiet way of extracting profit without paying dividend or PAYE tax, so it bolts on a charge under Section 455 of the Corporation Tax Act 2010. This calculator works out two separate costs that people routinely conflate: the Section 455 charge on the company, and the benefit-in-kind on you personally if the loan is large and cheap.
The Section 455 rate is 33.75 percent, deliberately set to match the higher dividend rate so there is no advantage in choosing a loan over a dividend. It bites on the balance left outstanding nine months and one day after the company's accounting year end. Repay the loan inside that window and no Section 455 is due. Miss it, and the company writes a cheque to HMRC for a third of the balance.
A £30,000 overdrawn balance, costed in full
Take a director who has drawn the account £30,000 overdrawn, has not repaid it before the nine-month deadline, and pays personal tax at the 40 percent higher rate. The tool layers the company charge and the personal benefit-in-kind. The benefit-in-kind uses HMRC's official rate of interest, 2.25 percent, applied to the whole balance because it sits above the £10,000 threshold, then taxes that notional interest at the director's marginal rate.
The bar chart sets the refundable company charge against the small, permanent personal cost. The Section 455 dominates the picture, but it is the part you eventually get back. The benefit-in-kind is gone for good.
Anti-avoidance rules and good housekeeping
The obvious dodge is to repay the loan a day before the deadline and redraw it a few days later. HMRC closed this with two anti-avoidance rules. The 30-day rule denies relief where £5,000 or more is repaid and a similar amount redrawn within 30 days. The intentions rule catches longer cycles where £15,000 or more is repaid and there was an arrangement to redraw. Genuine repayment from a declared dividend or bonus is fine. Shuffling the same cash in and out is not.
Owner-managers who dip into the company account through the year, then formalise the position at year end, are the typical users of this calculator. My practical tip is to record every drawing in real time and reconcile against your dividend paperwork quarterly. A balance that drifts past £10,000 starts generating a P11D benefit even if you fully intend to clear it, and a balance left past the nine-month mark locks up a third of it with HMRC for the best part of a year before you can reclaim it. If you write a loan off rather than repaying it, beware a second sting: a written-off director's loan is usually taxed on you personally as if it were a dividend, and can attract National Insurance too, so writing off is rarely the clean escape it first appears.
Is taking a director's loan cheaper than a dividend?
Almost never, once the loan stays out past the deadline. The Section 455 rate of 33.75 percent was deliberately set to match the higher dividend rate precisely so there is no tax saving in dressing up profit extraction as a loan. A loan only makes sense as genuine short-term borrowing that you clear within the nine-month window, in which case no Section 455 arises at all. If you intend to keep the money, declaring a dividend or salary and paying the tax is cleaner and frees you from the £10,000 benefit-in-kind trap.
What if I lend money to my own company instead?
That is the mirror image and it is perfectly fine. If you put your own cash into the company, the director's loan account is in credit rather than overdrawn, no Section 455 or benefit-in-kind arises, and the company can repay you tax-free whenever it has the funds. You can even charge the company a commercial rate of interest on the loan, which is a deductible expense for the company, though the interest is taxable income for you and the company must deduct income tax at source and report it on form CT61.