Director Loan Account Management & Resolution Services

If your director loan account is overdrawn by more than £10,000 at the end of your company's accounting period, your company will face a Section 455 tax charge of 32.5% on the outstanding balance. This tax is paid by the company but can be recovered if you repay the loan within 9 months of the accounting period end.

Additionally, if you haven't paid interest on the loan at the official rate (currently 2.25%), you'll face benefit-in-kind tax charges on your personal tax return, and the company will pay Class 1A National Insurance on the benefit.

Key deadlines: S455 tax is due 9 months and 1 day after the accounting period ends. You can recover this tax if the loan is repaid within 9 months of the accounting period end.

There are several legitimate ways to clear an overdrawn DLA:

• Direct repayment: Use personal funds to repay the loan in full
• Salary or bonus: Take increased salary or bonus (subject to PAYE and NI)
• Dividends: Declare dividends to offset the loan (if profits available)
• Expense claims: Submit legitimate business expense claims
• Asset transfer: Transfer personal assets to the company
• Formal loan agreement: Convert to formal loan with market rate interest

Our experts can help you determine the most tax-efficient strategy based on your specific circumstances, considering factors like your marginal tax rate, available profits, and cash flow position.

The official interest rate for beneficial loans (including director loan accounts) is set by HMRC and currently stands at 2.25% per annum (as of 2024/25 tax year).

If you don't charge interest at this rate or higher on overdrawn DLAs exceeding £10,000, you'll face benefit-in-kind tax charges. The benefit is calculated as the difference between the official rate and what you actually paid.

Tax implications: You'll pay personal income tax on the benefit at your marginal rate, and your company will pay Class 1A National Insurance at 13.8% on the benefit value.

Yes, absolutely. An overdrawn director loan account is a debt owed by you personally to the company. If your company goes into liquidation, the overdrawn DLA becomes immediately repayable to the company, and the liquidator will pursue you for full repayment.

This is a priority area for liquidators because:

• It's a clear debt with documented evidence
• It's owed by a director with known whereabouts
• Recovery increases funds available for creditors
• Directors cannot claim they "didn't know" about the debt

Critical: If you cannot repay the loan, liquidators may:

• Seek bankruptcy proceedings against you personally
• Place charging orders on your property
• Pursue misfeasance claims if improper conduct is identified
• Report director disqualification grounds to the Insolvency Service

Our director protection services can help you manage DLA risks before insolvency occurs and defend against liquidator claims if insolvency is unavoidable.

These terms are often used interchangeably and refer to the same thing: a record of transactions between a director and their company. The account tracks money flowing in both directions.

The account shows:

• Credits: Loans made by director to company, personal expenses paid on behalf of company
• Debits: Withdrawals by director, personal expenses paid by company, private use of company assets

Balance interpretation:

• Credit balance: Company owes director money - can be repaid tax-free
• Debit/overdrawn balance: Director owes company money - triggers S455 and BiK tax

Regardless of the terminology used, the tax treatment and compliance requirements remain identical. Both terms describe the same financial relationship between director and company.

There are several strategies to avoid S455 tax charges:

1. Keep balance under £10,000: No S455 tax applies if overdrawn balance is £10,000 or less at year-end

2. Clear balance before year-end: Repay the loan before your accounting period ends (but be aware of "bed and breakfasting" rules - see below)

3. Use tax-efficient remuneration: Structure salary and dividends to prevent overdrawn position

4. Formal loan agreement: Convert to properly documented loan with commercial terms

Bed and breakfasting warning: HMRC will still charge S455 tax if you:

• Repay the loan within 30 days of year-end
• Then re-borrow within 30 days after year-end
• Do this to deliberately avoid the tax charge

Our tax planning experts can help you implement legitimate strategies that minimize S455 exposure while maintaining proper compliance with HMRC regulations.

Professional advice is strongly recommended if any of these apply:

• Your DLA is overdrawn by more than £10,000
• You've already incurred S455 tax charges
• Your company is facing financial difficulties
• You're unsure about tax implications of your DLA transactions
• You need to implement a repayment strategy
• You've received HMRC queries about your DLA
• Your company is entering insolvency proceedings
• You want to optimize tax efficiency

Benefits of professional DLA management:

• Avoid unexpected tax charges
• Minimize personal liability risks
• Implement tax-efficient strategies
• Ensure full HMRC compliance
• Protect against liquidator claims
• Peace of mind with expert guidance

Book a free consultation to discuss your director loan account position with our specialists.