What happens if I owe money to my company on a director's loan?
Answered 17 March 2026
Here is a comprehensive answer to your question about owing money to your company on a director's loan.
What the Law Says
1. The S455 Corporation Tax Charge (on the Company)
If your company is a close company (broadly, controlled by 5 or fewer participators or by director-participators), and you owe it money via an overdrawn director's loan account, the company itself faces a tax charge. Under s455 CTA 2010:
"There is due from the company, as if it were an amount of corporation tax chargeable on the company for the accounting period in which the loan or advance is made, an amount equal to such percentage of the amount of the loan or advance as corresponds to the dividend upper rate specified in section 8(2) of ITA 2007 for the tax year in which the loan or advance is made."
This tax is due 9 months after the end of the accounting period in which the loan was made. Importantly, a person simply incurring a debt to the close company is treated as receiving a loan for these purposes.
Relief is available to the company under s458 CTA 2010 if the loan is repaid, released or written off — the company can reclaim the s455 tax paid.
2. Benefit in Kind on the Director (Income Tax & NICs)
If the loan is interest-free or below the official rate, you as director are treated as receiving a taxable benefit in kind under Chapter 7 of Part 3 of ITEPA 2003 (ss.173–191). The taxable amount is the difference between interest at the official rate and any interest actually paid.
3. If the Loan is Written Off or Released (Income Tax on the Director)
If the company releases or writes off the whole or part of the debt, s415 ITTOIA 2005 charges income tax on you personally:
"Income tax is charged if— (a) a company is or was chargeable to tax under section 455 of CTA 2010 (loans to participators in close companies) in respect of a loan or advance, and (b) the company releases or writes off the whole or part of the debt in respect of the loan or advance."
This charge takes priority over any charge under s188 ITEPA 2003 (loan written off treated as earnings) — you will not be taxed twice on the same amount.
4. No Interest Relief
Any interest you pay on an overdrawn director's loan account does not qualify for relief under s383 ITA 2007, regardless of what the borrowed money was used for.
HMRC Guidance / Practice
S455 Charge Rate and Timing
HMRC confirms the s455 charge applies to close company loans to director-participators. For example, on a £1.75m overdrawn loan account, HMRC illustrates a s455 charge of £568,750 (at 32.5%) if not repaid within 9 months of the accounting period end.
Beneficial Loan / Benefit in Kind
HMRC guidance confirms that if a director's loan account is overdrawn and no interest (or insufficient interest below the official rate) is paid, HMRC will determine whether general earnings chargeable to income tax arise under the beneficial loan legislation. If so, Class 1A NICs are also due on that amount.
Write-Off / Release on Liquidation
HMRC takes the view that even where a liquidator does not formally write off a loan, if there is no active pursuit of the debt, the loan may be treated as written off, triggering the s415 ITTOIA charge. HMRC has successfully argued this position before the First-tier Tribunal.
Withdrawals as Remuneration
HMRC notes that if directors own all the share capital and decide (formally or informally) that withdrawals are remuneration, those withdrawals are not loans — PAYE must be applied at the time of withdrawal instead.
Summary Table
| Consequence | Who it affects | Trigger |
|---|---|---|
| S455 CT charge (at dividend upper rate) | The company | Loan outstanding 9 months after accounting period end |
| Benefit in kind (income tax + Class 1A NICs) | You (the director) | Loan is interest-free or below official rate |
| Income tax under s415 ITTOIA | You (the director) | Company releases or writes off the loan |
| No interest relief | You | Interest paid on overdrawn account |
Citation sources
Part 10 Close companies Chapter 3 Charge to tax in case of loan to participator Charge to tax in case of loan to participator Charge to tax in case of loan to participator 455 1 This section applies if a close company makes a loan or advances money to— a a relevant person who is a participator in the company or an associate of such a participator, b the trustees of a settlement one or more of the trustees or actual or potential beneficiaries of which is a participator in the company or an associ
is a period consisting of the whole or part of that tax year during which the loan is outstanding and the employee holds the employment; (b) no interest is paid on the loan for that tax year, or the amount of interest paid on it for that tax year is less than the interest that would have been payable on it at the “official rate”; and (c) none of the exceptions in Sections 176 to 179 of the ITEPA applies - see Section 175(2) of the ITEPA. None of the exceptions in Sections 176 to 179 of the ITEPA
If a director’s loan account is overdrawn and the overdrawn amount is a loan for any period in a tax year, and either: no interest is paid on the overdrawn amount for that year before any Class 1A NICs are due to be paid; or the amount of the interest paid on it, for the tax year during which the loan account was overdrawn, is less than the interest that would have been payable at the official rate (see EIM26103 for guidance about the official rate) determine if there are general earnings charge
Section 455 (S455) Corporation Tax Act (CTA) 2010 (formerly S419 Income and Corporation Taxes Act (ICTA) 1988) Liability on close company loans and advances to participators S455(3) CTA 2010 (formerly S419(3) ICTA 1988) Determines the due date for tax due under Section 455 CTA 2010 (formerly S419 ICTA 1988) S458(2)/(3) CTA 2010 (formerly S419(4) ICTA 1988) Relief in terms of tax against an assessment made under S455 CTA 2010 (formerly S419 ICTA 1988) when the loan or advance to the participator
Part 4 Savings and investment income Chapter 6 Release of loan to participator in close company Charge to tax under Chapter 6 415 1 Income tax is charged if— a a company is or was chargeable to tax under section 455 of CTA 2010 (loans to participators in close companies etc. ) in respect of a loan or advance, and b the company releases or writes off the whole or part of the debt in respect of the loan or advance. 2 Subsection (1) is subject to section 418 (relief where borrowers liable as settlo
A close company is chargeable to tax on any loans it makes to a director or an employee who is a participator (or an associate of a participator) under section 455 CTA 2010. If a loan which is chargeable under section 455 is released or written off either wholly or in part, the borrower’s total income is normally treated under section 415 ITTOIA 2005 as if it were increased by the amount released or written off, grossed up at the Savings and Investment Income ordinary rate of tax as applicable t
When reviewing a director's current or loan account with a company, an Inspector should bear the following in mind: if the directors own all the share capital of the company and either formally or informally decide that sums being withdrawn by them from the company are remuneration, or on account of remuneration, the withdrawals are not loans. PAYE should be applied at the time of the withdrawal. Withdrawals are assessable as remuneration in the year in which they are received (see EIM42270) if
Equally in many cases, repayment is said to be effected by the transfer of an asset from the debtor/participator to the company. In such cases, the market value of the asset at the time of transfer should be established, if necessary, with the help of valuation colleagues. Only the market value of the asset transferred to the company will constitute a repayment. Example Shareholder has an overdrawn DLA in his company (Y) amounting to £1.75m at the end of the AP to 31 March 2020. If this is not