The Company’s Money in Your Name: A Director’s Loan Account Review for 2026

The account that is not a bank account

For many owner-managed companies, the director’s loan account is the least glamorous page in the ledger and the one most likely to cause a year-end surprise. It records what the company owes the director — salary, expenses, dividends credited but not paid — and what the director owes the company. When the account is overdrawn, the company has, in substance, made a loan to the director or a person connected with the director. That is a tax event, not merely a bookkeeping entry.

The distinction matters because the rules operate on different clocks. The benefit-in-kind rules look at the tax year and the £10,000 threshold. The s455 corporation tax charge looks at the company’s accounting period and the balance outstanding nine months and one day after the period end. A balance that looks modest in monthly management accounts can therefore become a cash-flow issue if it is still there at the wrong date.

The £10,000 threshold is not the s455 threshold

A common misunderstanding is that £10,000 is a safe harbour for the loan account as a whole. It is not. The £10,000 figure is the threshold for the beneficial loan exemption for employment-related loans. Where the aggregate of loans to an employee or director exceeds £10,000 at any point in the tax year, a taxable benefit can arise unless interest is charged at least at the official rate. Below that threshold, the benefit is usually exempt, but the loan still has to be recorded and, if it is owed to a close company by a participator, the s455 rules can still apply.

The s455 charge is a corporation tax charge on a loan to a participator that remains outstanding nine months and one day after the end of the accounting period. The rate is 33.75%. It is designed as a cash-flow charge rather than a permanent tax: when the loan is repaid or released, relief can usually be claimed, subject to the write-off and anti-avoidance rules. That does not make it painless. Paying 33.75% of an overdrawn balance, even temporarily, can be a serious drain on working capital.

A worked example

Assume a company with a 31 March year-end has an overdrawn director’s loan account of £48,000 at 31 March 2026. The s455 charge would be £16,200. If the loan is repaid by 31 December 2026 — nine months after the period end — the charge should not arise. If it is still outstanding on 1 January 2027, the company will generally have to pay the charge and reclaim it later when the loan is repaid or released.

Now suppose the director also has the loan outstanding during the 2026/27 tax year. Because the balance exceeds £10,000 at some point in the year, a benefit-in-kind charge may arise on the difference between the official rate of interest and any interest actually paid. If the company charges interest at the official rate, the benefit can be eliminated. If it charges nothing, the director may face a taxable benefit and the company may have a Class 1A National Insurance liability. The exact figures depend on the balance and the official rate, but the principle is straightforward: document the interest, or expect HMRC to impute it.

Repayment traps that surface at year-end

Dividends are not a magic eraser

Using a dividend to clear an overdrawn loan account is common, but it only works if the company has sufficient distributable reserves, the dividend is properly declared, and the paperwork is in place. A journal posted after the year-end cannot retrospectively create distributable profits. If the dividend is excessive or undocumented, the loan may simply reappear — with interest and penalties alongside it.

The 30-day replacement rule

Repaying a loan and then re-lending the same money within 30 days can be treated as a replacement loan for s455 purposes. In practice, the relief may be denied and the tax charge can remain. The same principle can affect benefit-in-kind planning. A genuine repayment should reduce the balance and stay reduced; a circular transaction is unlikely to survive scrutiny.

Private expenses and company cards

Not every overdrawn balance begins with a cash transfer. Private expenses paid by the company, director’s credit card bills, and personal items run through the business can all debit the loan account. These are easy to miss because they do not look like loans. A monthly review of the director’s current account, rather than an annual panic, is the better control.

Interest and documentation

If the company intends to charge interest, the terms should be agreed and recorded. A loan agreement, board minute or written memorandum is not red tape for its own sake: it evidences the terms and supports the tax treatment. Where the loan is interest-free, the benefit-in-kind exposure should be quantified rather than assumed away.

A pre-year-end review routine

A practical routine for November or December, or before any accounting period end, looks like this:

• Extract the director’s loan account and identify every debit balance, including connected-party balances.
• Separate genuine loans from expenses, dividends and salary credits.
• Check whether any balance has exceeded £10,000 during the tax year.
• Confirm the interest rate, if any, and calculate the benefit-in-kind exposure.
• Forecast the s455 charge at 33.75% for any balance likely to remain outstanding at the due date.
• Consider whether a dividend is affordable and properly documented — not merely convenient.
• Diary the repayment deadline and the s455 payment date.
• Review the 30-day replacement risk before any repayment and re-lending.
• Speak to the company’s accountant before the position is locked in.

The loan account is not a problem to be solved with a single journal at the year-end. It is a running record of the boundary between the company and its directors. Managed monthly, it is unremarkable. Left to the last minute, it can produce a tax charge, a benefit-in-kind liability and an awkward conversation with the bank. The £10,000 figure is a useful warning light, but it is not a perimeter fence; the s455 rules and the repayment timetable deserve equal attention.