Overdrawn Directors Loan: Refinance Options After S455 Rise
From 6 April 2026 the section 455 Corporation Tax rate on overdrawn director loans rose from 33.75% to 35.75%. The change applies to new overdrawn balances at the company's accounting period end. This guide covers what S455 actually charges, when it applies, and the refinance versus absorb decision: which BBL-reviewed UK lenders treat directors loan account refinance as a clean use of funds and at what rate.
Director, BestBusinessLoans
Oliver leads BestBusinessLoans's editorial reviews and methodology. With a background in UK commercial finance, he oversees lender research, rate verification and review independence.
Last reviewed: 7 May 2026
What S455 actually is
Section 455 of the Corporation Tax Act 2010 charges Corporation Tax on a loan from a close company to a participator (typically a director-shareholder) that remains outstanding 9 months and 1 day after the company's accounting period end. From 6 April 2026 the rate is 35.75% (raised from 33.75%). The charge is paid by the company alongside its main Corporation Tax. It is recoverable when the loan is repaid, written off or released, but only after the loan is cleared, not in the same period. The cashflow cost of S455 is therefore 35.75% of the overdrawn balance held by HMRC for at least 12 months and often longer.
When S455 applies
S455 applies if a director-shareholder owes the company money on the directors loan account at the period end and the balance is still outstanding 9 months and 1 day later. The charge is per-period: clear the balance before the deadline and S455 does not apply for that period. Common triggers: drawing dividends ahead of declared profit, drawing salary in advance of PAYE-able earnings, paying personal expenses through the company without expense-claim documentation, paying the director a bonus that is then not formalised before the period end. Above £10,000 outstanding, the loan is also a benefit-in-kind under section 175 ITEPA 2003 and triggers Class 1A National Insurance for the company plus an income-tax benefit on the director.
Refinance vs absorb: the decision frame
Three numbers drive it. First, the cashflow cost of S455 (35.75% of the overdrawn balance held by HMRC for 12+ months). Second, the refinance APR available to the company (typical UK SMB term loan APR is 6.9% to 26.9% headline, asset-backed from around 7.5%, MCA factor-rate equivalent 30% to 60%). Third, the recoverable position of S455 (you get it back when the loan clears, with a 9-month wait after the period of repayment). For balances above £15,000 with a clean-credit profile, refinancing the directors loan account into a commercial term loan is usually cheaper in cash terms than letting S455 apply. For balances below £10,000 the BIK threshold and the all-in cost of refinance arrangement fees often make absorption the cleaner answer.
BBL-reviewed lenders that treat DLA refinance favourably
Refinancing a directors loan account is a "lend to the company so the company can be repaid the director's overdrawn balance" structure. Lenders treat the use of funds based on the underlying purpose and the resulting balance-sheet position. Mainstream UK SMB term lenders that engage on this purpose: Funding Circle and iwoca will fund a clean-credit Ltd company on standard term-loan terms where the use of funds is recapitalising working capital (the DLA correction is a corollary). Allica Bank and OakNorth engage on asset-backed structures where the company has commercial property or significant trade asset value. Aldermore and Shawbrook Bank follow similar logic on asset-backed lines. Just Cashflow and Time Finance accept established-Ltd refinance cases. Specialist post-decline lenders (Bizcap, JPM Capital, Bolton Finance) engage where the credit profile rules out mainstream routes. The lender wants the director-loan-clearance written into the use of funds and reflected in management accounts and the next set of statutory accounts.
Practical timeline for clearing before the next 9-month deadline
Day 1: confirm the company's accounting period end and the S455 deadline (9 months and 1 day after). Day 2: pull the directors loan account ledger, confirm the balance, identify any double-entry errors. Day 3: speak to the accountant about whether the balance can be cleared via dividend, bonus or salary inside the period without breaching cashflow. Day 4 onwards: if internal clearance is not available, apply for a commercial term loan (soft search at quote with Funding Circle, iwoca, etc.). Allow 2 to 4 weeks for term-loan completion. If the deadline is closer than 4 weeks, asset-backed bridging or specialist routes shorten the timeline at higher cost.
What not to do
Do not write off the directors loan account informally to clear S455. A formal write-off is treated as employment income or a distribution and triggers PAYE, National Insurance or income-tax charges that often exceed the S455 cost. Do not "refresh" the loan by repaying it just before the 9-month deadline and re-drawing immediately afterwards. The bed-and-breakfasting rules in section 464A CTA 2010 catch this: any repayment within 30 days of the original drawing is matched against new drawings of £5,000 or more, and S455 still applies. Do not pay a personal loan from the company to clear a different personal debt. The new loan re-creates the S455 charge.
FAQ
When exactly did S455 jump to 35.75%?
From 6 April 2026, mirroring the dividend additional rate of 39.35% less the 3.6% credit equivalent. Loans outstanding at accounting period ends after 5 April 2026 and still owed 9 months and 1 day later are charged at 35.75%. The previous rate was 33.75% and applied for periods ending up to 5 April 2026.
Can I just repay the loan in time and avoid S455?
Yes for the period in question if the repayment lands more than 30 days before the 9-month-and-1-day deadline and is not matched against a fresh drawing of £5,000 or more under the bed-and-breakfasting rules in section 464A CTA 2010. A clean repayment from genuine personal funds (a personal loan, a sale of personal assets, a salary or formal dividend) clears the charge.
Will writing off the directors loan stop S455?
Writing off is taxed as employment income or a distribution depending on circumstances. The income tax and National Insurance that follow often exceed the S455 cost. Always model both routes with the accountant before deciding. A formal write-off also has Companies House implications and may need shareholder approval.
Can I refinance the directors loan with a personal loan?
Yes. A personal loan to the director, with the proceeds used to repay the director's loan to the company, clears the company-side balance and removes the S455 exposure. Personal loan APRs for established directors with clean credit typically run 6% to 12% APR, often cheaper than the 35.75% S455 charge in cashflow terms (S455 is recoverable but recovers slowly). The trade-off: the personal liability sits with the director not the company.
Can the company borrow to clear my directors loan account?
Functionally yes. The structure is: company borrows from a commercial lender, company pays the director a bonus or dividend equal to the overdrawn balance plus the relevant tax, director uses the after-tax proceeds to clear the overdrawn balance. The company has a new commercial debt; the director's loan is cleared. PAYE / dividend tax on the distribution must be modelled before deciding.
Does the £10,000 BIK threshold still apply?
Yes. Loans above £10,000 outstanding at any point in the year trigger benefit-in-kind treatment under section 175 ITEPA 2003: Class 1A National Insurance for the company at 14.53% (from April 2025), plus an income-tax benefit on the director at the official rate. This is separate from the S455 corporation-tax charge and applies whether or not the loan is cleared inside the 9-month-and-1-day window.
How long does it take to get the S455 back after I clear the loan?
You claim the S455 back via the form L2P (or the equivalent CT600A entries) on the Corporation Tax return covering the period in which the loan is cleared, written off or released. HMRC repays approximately 9 months after the end of that period. So the round-trip from drawing to recovery is at least 21 months in most cases. The cashflow drag is the entire reason refinancing is often the cheaper answer for material balances.
Does the new 35.75% rate apply retrospectively?
No. The 35.75% rate applies to overdrawn balances at accounting period ends starting on or after 6 April 2026. Balances outstanding at earlier period ends are charged at the old 33.75% rate, even if the 9-month-and-1-day deadline falls after April 2026.
Reviewed by Oliver Mackman, Director. Last reviewed: 2026-05-07.