What Is S455 Tax? A Guide for Company Owners

Robyn Moore
Feb 10
3 min read

If you run a UK limited company, chances are you’ve heard your accountant mention s455 tax, often with a warning tone. That’s because s455 tax can be expensive, confusing, and usually comes as a surprise.

Let’s break it down in plain English and explain what s455 tax actually is, when it applies, how much it costs, and how to stay on HMRC’s good side

What is s455 tax?

At its core, s455 tax is HMRC's way of discouraging directors from treating the company like a personal overdraft.

s455 tax is a temporary tax charge paid by a company when it lends money to a director or shareholder, and that loan is not repaid within a set time limit.

It’s set out in Section 455 of the Corporation Tax Act 2010, hence the name.

In simple terms:

Your company lends money to you (or another shareholder)
The loan isn’t repaid on time
HMRC charges the company extra tax as a penalty

This tax is designed to stop directors taking money out of companies as loans instead of salary or dividends.

When does s455 tax apply?

There are a few specific conditions that have to be met before HMRC will charge s455 tax.

s455 tax applies when all of the following are true:

The company is a close company (usually a small, owner‑managed limited company)
A director or shareholder owes the company money
The loan balance is still outstanding 9 months and 1 day after the end of the accounting period

If the loan is repaid before that deadline, no s455 tax is due.

How much is s455 tax?

This is the bit that tends to sting.

The s455 tax rate is 33.75% of the outstanding loan balance. It's deliberately high; it mirrors the higher dividend tax rate and makes s455 something you want to avoid rather than budget for.

Example

Your company's year-end is 31 March 2025. You owe the company £10,000, and the loan is still unpaid on 1 January 2026.

s455 tax due:

£10,000 × 33.75% = £3,375

Important point: the company pays this tax, not you personally, which means the company's cash flow takes the hit.

Is s455 tax permanent?

Thankfully, no, but it can tie up cash for years.

Once the loan is repaid, the company can reclaim the s455 tax from HMRC.

The refund is only available 9 months and 1 day after the end of the accounting period in which the loan is repaid. In other words, your money can be stuck with HMRC for quite a while. This delay is why s455 tax can be so frustrating from a cash‑flow point of view.

What counts as a director’s loan?

Many directors trigger s455 tax without realising they’ve taken a loan at all.

Common examples include:

Personal expenses paid by the company
Cash withdrawn that isn’t salary or dividends
Using company funds temporarily with the intention to “sort it later”

HMRC doesn’t really care about intentions; if the balance is there at the deadline, s455 tax can apply.

How can you avoid s455 tax?

In most cases, s455 tax is avoidable with a bit of planning.

Common ways to clear a director's loan include:

Repay the loan before the deadline
Declare a dividend to clear the balance (if profits allow)
Pay a bonus or Salary (watch the PAYE and NIC implications)
Keep a close eye on directors' loan accounts throughout the year

A quick check‑in before the year-end is far cheaper than dealing with s455 after the fact.

What happens if you ignore it?

Ignoring s455 tax can quickly turn a manageable issue into a costly one.

If s455 tax is unpaid:

HMRC can charge interest and penalties
It may trigger wider scrutiny of director withdrawals
Cash flow issues can spiral quickly

This is one of those taxes that’s far easier (and cheaper) to manage early.

Final thoughts

s455 tax isn’t about stopping directors from accessing company money, it’s about doing it the right way and at the right time.

If you understand the rules and plan withdrawals properly, it’s usually avoidable. But if it’s ignored, it can become an expensive and frustrating problem.

If you regularly take money from your company or your director’s loan account often goes overdrawn, it’s worth getting advice before the year-end, not after HMRC comes knocking.

Need help managing director’s loans or understanding your company tax position? Speak to your accountant sooner rather than later. It can save you a lot of tax and stress.