A quick note: this article is general information, not personal advice. Tax and accounting rules change and everyone's situation is different, so please don't act on anything here without checking how it applies to you. We'd be happy to help — get in touch before making any decisions.
Quick answer
Section 455 tax is a temporary tax charge on a close company where a loan or advance to a shareholder/participator remains outstanding beyond the relevant deadline. For loans made on or after 6 April 2026, the rate is 35.75%. Paying section 455 does not clear the loan — the borrower still owes the company the underlying money.
At a glance
- Section 455 applies to the company, not as a direct personal tax on the borrower.
- It is principally a loan-to-participator/shareholder rule — it applies because of the shareholding, not merely because of directorship.
- For relevant loans made from 6 April 2026 the rate is 35.75%.
- The key payment deadline is normally nine months and one day after the end of the accounting period.
- Relief can generally become available after genuine repayment, release or write-off, but repayment of the tax can be delayed.
- Anti-avoidance rules can block temporary repay-and-redraw arrangements.
Why does section 455 exist?
Without a special rule, a shareholder could potentially take company money as an indefinite loan rather than extract value through taxable salary or dividends. Section 455 creates a substantial temporary company tax charge while qualifying shareholder loans remain outstanding, removing the tax advantage of leaving the money out indefinitely.
For the broader context of what triggers a director's loan account situation, read our Director's Loan Accounts Explained guide first.
Who does section 455 apply to?
Broadly, the regime applies where a close company makes a loan or advance to a participator or relevant connected person. Most small owner-managed companies are close companies, and their owner-directors are usually participators because they are shareholders. A person being a director alone is not what brings the loan into section 455 — it is the shareholding/participator status.
What is the section 455 tax rate in 2026/27?
For loans made or benefits conferred on or after 6 April 2026, HMRC confirms the rate is 35.75%. The rate is linked to the dividend upper rate.
Worked example: £25,000 loan
Chargeable loan: £25,000 — Section 455 rate: 35.75%
Section 455 tax: £8,937.50
The company pays the £8,937.50. The shareholder still owes the £25,000 principal.
Worked example: £80,000 loan
Chargeable loan: £80,000
£80,000 × 35.75% = £28,600
A large DLA can therefore cause a very significant company cash-flow cost.
When is section 455 tax payable?
For a normal Corporation Tax accounting period, the section 455 payment point is nine months and one day after the end of the accounting period. If the chargeable loan is genuinely repaid before the payment date, the company can generally avoid having to hand over the corresponding section 455 cash, subject to the matching and anti-avoidance rules. For detailed deadline examples and planning around the timetable, read The Director's Loan 9-Month Rule Explained.
Do I still owe the loan after section 455 is paid?
Yes. This is one of the most important points for directors to understand. Section 455 tax is not a settlement of the debt. If the company pays £20,000 of section 455 because you owe it money, you still owe the original loan to the company.
Can section 455 tax be reclaimed?
Relief can generally become available if the loan is genuinely repaid, released or written off. However, the company does not necessarily receive the cash back immediately. The date from which section 455 relief becomes due can be considerably later than the repayment itself, particularly where repayment happens after the original payment deadline. That delay is why treating section 455 as "refundable anyway" can be a dangerous cash-flow attitude. For the full range of clearance options, see How to Clear an Overdrawn Director's Loan Account.
What are the bed-and-breakfasting rules?
HMRC has rules that match certain repayments against new borrowing so a shareholder cannot simply clear the loan briefly around the deadline and then take the money straight back.
30-day rule
Broadly, where repayments total £5,000 or more and new relevant chargeable loans total £5,000 or more within the relevant 30-day period, the matching rules can apply.
Arrangements rule
A wider rule can apply where:
- at least £15,000 is outstanding immediately before the repayment; and
- arrangements exist at that time for at least £5,000 of new loans or chargeable payments to be made.
These are headline descriptions only; the detailed statutory matching can be more complicated. Take advice where sums are material.
How does the £10,000 beneficial-loan rule relate to section 455?
The two regimes are separate. The £10,000 small-loan exemption relates to an employment-related beneficial-loan benefit in kind — it is not a section 455 threshold. A loan below £10,000 can still attract section 455 if it is a qualifying shareholder loan that remains outstanding past the deadline.
Does a dividend clear section 455 exposure?
A lawful dividend credited to the DLA can genuinely reduce or clear the loan where sufficient distributable profits exist. The dividend itself has the normal personal dividend-tax consequences. The dividend must be real, properly declared and supported by distributable reserves — it cannot simply be backdated or invented to make a loan disappear.
What if the loan is written off?
A release or write-off can trigger relief from section 455, but the borrower will normally have a personal tax consequence on the amount released, and National Insurance also needs consideration where the shareholder is an employee/director. A write-off is therefore not a free escape route.
What we see in practice
The expensive mistake is often not the existence of section 455 itself; it is discovering the exposure after the deadline when the company could have planned a legitimate dividend, repayment or remuneration strategy earlier. For clients with regular drawings, we prefer to review the DLA during the accounting year and again well before the nine-month payment date. Early awareness leaves far more options open — which is exactly why monitoring the DLA balance throughout the year matters so much.
